Question
Submit your answer in a single Excel file. Where calculations are required, it must be readily apparent to the grader how you arrived at your
Submit your answer in a single Excel file. Where calculations are required, it must be readily apparent to the grader how you arrived at your answer. Verbal answers should be expressed clearly and concisely.
2. Acme Company manufactures a variety of industrial products sold throughout the United States. Jim Beam has been manager of Central Division for the past three years. In years 2 and 3, he was able to qualify for an annual bonus of $100,000 by meeting a target growth rate of 10% of gross sales. Income statements for the division (in $thousands):
Year 1 Year 2 Year 3
Gross sales 40,200 45,300 50,500
Returns and allowances 250 310 400
Net sales 39,950 44,990 50,100
COGS 23,170 28,300 33,000
Gross profit 16,780 16,690 17,100
Expenses:
Sales commissions 4,020 4,530 5,050
Manager salary/bonus 250 350 350
Advertising 560 780 975
Other division overhead 2,850 3,290 4,130
General and administrative 8,040 9,060 10,100
15,720 18,010 20,605
Net income/loss 1,060 (1,320) (3,505)
All advertising and other division overhead is local to the division and controlled by the manager. General and administrative expense represents corporate overhead which is allocated at the rate of 20% of gross sales.
Required:
Because Central Division is showing increasing losses, a senior vice president has suggested that the division be closed. Comment on the advisability of this plan.
Comment on the effectiveness of the bonus plan used by Acme. Provide evidence in support of your comments.
How might the bonus plan be revised to be more effective?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started