Summit Equipment specializes in the manufacture of medical equipment, a field that has become increasingly competitive. Harrington, president of Summit, decided to revise the bonus plan so that it would encourage division managers to focus on areas that were important to customers and that added value without increasing cost. In addition to a profitability incentive, the revised plan also includes incentives for reduced rework costs, reduced sales returns, and on-time deliveries. Bonuses are calculated and awarded semi-annually on the following basis.

Profitability:2% of operating income.

Rework:Costs in excess of 2% of operating income are deducted from the bonus amount.

On-time delivery:$5,000 if over 98% of deliveries are on time, $2,000 if 96-98% of deliveries are on time, and no increment if on-time deliveries are below 96%.

Sales returns:$3,000 if returns are less than 1.5% of sales. 50% of any amount in excess of 1.5% of sales is deducted from the bonus amount.

Note: If the calculation of the bonus results in a negative amount for a particular period, the manager simply receives no bonus, and the negative amount isnotcarried forward to the next period.

The following are the results for the Charter Division for the semi-annual periods indicated:

Oct. X3 - April X4 - March 20X4 Sept 20X4 Sales $4,200,000 $4,400,000 Operating income $462,000 $440,000 On-time delivery 95.4% 97.3% Rework costs $11,500 $11,000 Sales returns $84,000 $70,000

The bonus award for the semi-annual period October 20X3 to March 20X4 for the Charter Division management amounted to: