Elba Consulting Associates (ECA) is organized into three divisions (Manufacturing, Retail, and Entertainment). Many support services,...

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Elba Consulting Associates (ECA) is organized into three divisions (Manufacturing, Retail, and Entertainment). Many support services, such as human resources, legal, and information technology, are provided by corporate staff. The corporate staff costs are allocated to the divisions based on divisional revenue. The resulting divisional operating profit (computed as divisional revenues less divisional direct costs less corporate cost allocations) is used to evaluate and compensate all division managers. The compensation plan consists of a fixed salary plus a bonus, which depends on the actual divisional operating profit compared to the target profit. The fixed salary for all three division managers is $565,000. The bonus consists of two parts. First, there is a "target bonus," which is a flat $25,000 for meeting the operating profit target. Second, there is an "incentive bonus," which is equal to 0.20% of salary for every thousand dollars of operating profit in excess of the target. The bonus amounts are not included in divisional operating profits. Partial target and actual results for the most recent year were as follows: Target ($000) : Division revenues Division direct costs Manufacturing $ 52,500 18,000 Retail $ 82,500 34,500 Entertainment $ 62,500 28,500 Division margin $ 34,500 $ 48,000 $ 34,000 Actual ($000) : Division revenues Division direct costs Division margin Manufacturing $ 64,500 17,500 $ 47,000 Retail $ 93,500 33,500 $ 60,000 Entertainment $ 74,500 28,000 $ 46,500 Elba Consulting Associates (ECA) is organized into three divisions (Manufacturing, Retail, and Entertainment). Many support services, such as human resources, legal, and information technology, are provided by corporate staff. The corporate staff costs are allocated to the divisions based on divisional revenue. The resulting divisional operating profit (computed as divisional revenues less divisional direct costs less corporate cost allocations) is used to evaluate and compensate all division managers. The compensation plan consists of a fixed salary plus a bonus, which depends on the actual divisional operating profit compared to the target profit. The fixed salary for all three division managers is $565,000. The bonus consists of two parts. First, there is a "target bonus," which is a flat $25,000 for meeting the operating profit target. Second, there is an "incentive bonus," which is equal to 0.20% of salary for every thousand dollars of operating profit in excess of the target. The bonus amounts are not included in divisional operating profits. Partial target and actual results for the most recent year were as follows: Target ($000) : Division revenues Division direct costs Manufacturing $ 52,500 18,000 Retail $ 82,500 34,500 Entertainment $ 62,500 28,500 Division margin $ 34,500 $ 48,000 $ 34,000 Actual ($000) : Division revenues Division direct costs Division margin Manufacturing $ 64,500 17,500 $ 47,000 Retail $ 93,500 33,500 $ 60,000 Entertainment $ 74,500 28,000 $ 46,500