X Chapter 9 Problem 88P Scanlon planKnox Company manufactures consumer products such as cleansers, air fresheners, and detergents. During a recent quarter, the value of the products made was $50 million, and the labor costs were $3 million. The company has decided to use a Scanlon plan with this quarter being used to establish the base ratio for the plan. The formula is to be applied quarterly with differences, positive or negative, added to the bonus pool. Differences are calculated as the difference between the base ratio and the actual ratio for each quarter. The pool is to be distributed on a 35%/65% basis between the employees and the company at the end of the fourth quarter. The following production and cost levels were recorded during the first year of the plan's operation: QUARTER PRODUCTION PAYROLL VALUE COSTS 1 $45,000,000 $2,475,000 2 60,000,000 3,480,000 55,000,000 3,575,000 4 48,000,000 2,832,000 Required (a) How much would be distributed to the employees at the end of the year? (b) What assumptions does the Scanlon plan make about the behavior of payroll costs? (c) What formula should be used to determine each employee's share? (d) Management proposes to adjust the base ratio using the lowest ratio experienced in any year. Do you think this is a good idea? 3