Division X manufactures and sells branded consumer durables in competitive markets. High expenditure is required on product development and advertising, as the maintenance of market share depends on a flow of well-promoted new models. Reliable statistics on market size are available annually. Based on the market size for 2018, where stronger than anticipated growth had occurred, a revised market estimate of 165000 units for 2019 is agreed by group and divisional staff in May 2019. This is a significant increase on the estimate of 150000 units made in May 2018 and used since. The divisional general manager has commented that action now, almost halfway through the year, is unlikely to produce significant results during this year. However, had he known last year, at the time of producing the budget, that the market was growing faster, he could have taken the necessary action to maintain the strategic plan market share. The actions would have been: - cutting prices by 10 per unit below the price at present charged and used in the latest estimate for 2019; - increasing marketing expenditure by 300000 compared with the strategic plan. 335000 The group managing director, commenting on the same data, said that the divisional general manager could have maintained both strategic plan market share and selling prices by an alternative approach. The approach, he thought, should have been: - maintaining expenditure on product development and marketing at 20 per cent of sales over the years; - spending his time controlling production costs instead of worrying about annual bonuses. You are required: (a) To analyse and comment on the results of Division X, making appropriate comparisons with budget, with plan and with new available data. Present the results in such a form that the board can easily understand the problems involved. (17 marks) (b) To comment on the advantages and problems of the existing bonus system for the divisional general manager and the way in which the present bonus scheme may motivate the divisional general manager. (8 marks) (c) To make specific proposals, showing calculations if appropriate, for an alternative bonus scheme, reflecting your analysis in (a). (8 marks) A non-executive director has commented that he can understand the case for linking executive directors' rewards to group results. He is not convinced that this should be extended to divisional managers and certainly not to senior managers below this level in divisions and head office. old sea food bonus (d) Explain and discuss the case for extending bonus schemes widely throughout the organization. (7 marks) CIMA Stage 4 Management Accounting - Control and Audit