MedLine Equipment Corporation speclalizes in the manufacture of medical equipment, a field that has become increasingly competitive. Approximately two years ago. Ben Harrungton, prosident of MedLine, became concerned that the which focused on division profitability, was not helpin plan that would encourage employees to focus on operational areas that were important to customers an g MedLine remaln competitive. Harrington decided to imp a gain-sharing d that added value wtthout Increasing cost. In addition to a profitability incentive, the revised sales returns, and on-time deliveres. Bonuses ar distributed among the relevant employees according to a formula developed by the division manager. plan also Includes incentives for reduced rework costs. e calculated and awarded semlannually on the following basis. The bonuses are . Profitability: Two percent of operating income Rework: Costs in excess of 2 percent of operating Income are deducted from the bonus amount . On-time delivery: $15,500 If over 98 percent of deliverles are on time. $9,500 If 96 to 98 percent of delivertes are on time, and no ent If on-time deiiveries are below 96 percent . Sales returns: $9.300 if returns are less than 1.5 percent of sales. Fifty percent of any amount in excess of 1.5 percent of sales is deducted from the bonus amount Note: It the calculation of the bonus results in a negative amount for a particular period, there Is no bonus, and the negative amount is not carried forward to the next period. The revised bonus plan was implemented on January 1, 20x1. Presented in the following table are the results for two of Medine's divisions. Charter and Mesa Divisions. for the first year under the new bonus plan. Both of these divisions had simlar sales and operating Income results for the prior year. when the old bonus plan was in offect. Based on the 20xO results, the employees of the Charter Division earned a bonus of $59.620 while the employees of the Mesa Division earned $55.105. Charter Divi ion Mesa Davision Janu ry 20x1"' 20x1- r 20x1 June 20x1 Dece se, 950,000 s 984, 500 June 20x1 December 20xl s6, 250, 000 $6, 3so,ooo $ 750, oo0 ss, 350, 0o0 s 750, 000 889, 000 935, ooo 94-3% On-time delivery Revork costs Salon returns ? 170,200 2s, 300 s 151, 000 14, 20o s 100, soo $ 17,100 90, 500 26, 300