A risk-neutral worker can choose to exert either low or high effort. The manager cannot observe the worker'saction, but the manager can observe the realized revenue for the firm - either $200 or $600. The relationshipbetween effort and revenue is shown below. Use this information to answer questions #12 and #13.High EffortCost for worker= $40Prob(Rev = $200) = 20%Prob(Rev = $600) = 80%Low EffortCost for worker= $0Prob(Rev = $200) = 80%Prob(Rev = $600) = 20%12. Instead of offering a flat wage, the manager offers the worker 20% of the firm's realized revenue. Given thislabor contract, the firm's expected profit will bea. $224b. $280c. $376d. $416e. $52013. What's the smallest percentage of revenue the firm can offer to incentivize the worker to choose high effort?a. 6%b. 10%с. 16.7%d. 20%е. 33.3%

The following information has been provided in the question: Realized revenue of the firm= $200 or…

Answered: A risk-neutral worker can choose to…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter12: Balanced Scorecard And Other Performance Measures

Section: Chapter Questions

Problem 8MC: What should an organization do if performance measures change? A. Make sure that the manager being...

See similar textbooks

Similar questions

In designing a bonus structure to reward your production managers, one of the options is to reward the managers based on reaching annual income targets. What are the differences between a reward system for a company that uses absorption costing and one for a company that uses variable costing?
As manager of department B in MarIeys Manufacturing, based on the costs you identified in the previous exercise for further research, how does this impact the financial performance of your department, and what might be some questions you want to ask or solutions you might propose to Marleys management?
he chart below contains a description of Jack Company's top risk, an inherent risk assessment, three risk response alternatives, and a residual risk assessment for each response alternative. Also, Jack's management accountant estimates that the incremental cost of implementing risk response A is $2,600,000 and the incremental cost of implementing risk response B is $1,000,000. Risk Inherent Risk Residual Risk Likelihood Impact (on operating costs) Risk Response Alternatives Likelihood Impact (on operating costs) Lose top employee talent to competitors 50% $10,000,000 A: Improve Jack's employee training program 40% $3,000,000 B: Improve Jack's employee compensation and benefits package 20% $8,000,000 C: Take no action 50% $10,000,000 The residual risk for Jack Company associated with risk response alternative B is: a.$5,000,000. b.$1,000,000. c.$1,600,000 d.$3,200,000.
A sales manager is trying to determine appropriate sales performance bonuses for her teamthis year. The following table contains the data relevant to determining the bonuses, but itis not easy to read and interpret. Reformat the table to improve readability and to help thesales manager make her decisions on bonuses.
Profit Corp. has a subunit classified as a cost center that supports other parts of the firm but has reported costs higher than what the corporate office would like to see. Thus, the manager of this subunit is under pressure to cut operating costs without hurting the perceived quality of services provided. What general recommendations could you give to the manager of this cost center to achieve that goal?
Sometimes compensation packages include bonuses designed to provide performance incentives to employees. The difficulty a bonus can cause accountants is not an accounting problem, but a math problem. The complication is that the bonus formula sometimes specifies that the calculation of the bonus is based in part on the bonus itself. This occurs anytime the bonus is a percentage of income because expenses are components of income, and the bonus is an expense. Regalia Fashions has an incentive compensation plan through which a division manager receives a bonus equal to 15% of the division’s net income. Division income in 2024 before the bonus and income tax was $250,000. The tax rate is 30%. Calculate the amount of the bonus. Prepare the adjusting entry to record the bonus compensation. Bonus arrangements take many forms. Suppose the bonus specifies that the bonus is 10% of the division’s income before tax, but after the bonus itself. Calculate the amount of the bonus.
Sometimes compensation packages include bonuses designed to provide performance incentives to employees. The difficulty a bonus can cause accountants is not an accounting problem, but a math problem. The complication is that the bonus formula sometimes specifies that the calculation of the bonus is based in part on the bonus itself. This occurs anytime the bonus is a percentage of income because expenses are components of income, and the bonus is an expense. Regalia Fashions has an incentive compensation plan through which a division manager receives a bonus equal to 10% of the division’s net income. Division income in 2016 before the bonus and income tax was $150,000. The tax rate is 30%. Required: 1. Express the bonus formula as one or more algebraic equation(s). * 2. Using these formulas calculate the amount of the bonus. 3. Prepare the adjusting entry to record the bonus compensation. 4. Bonus arrangements take many forms. Suppose the bonus specifies that the bonus is 10% of the…
You work for Alphabet Holdings Plc as a junior management accountant. The board of directors are considering ways to improve the suboptimal performance of an investment in a manufacturing company called DEF products Ltd. As you can see from the table below the directors are considering closing products Bozon and Carbon in an effort to improve overall profitability. You spot that marginal costing would show the results differently and may affect the directors’ decision. Requirements for Question 2 Use your knowledge of management accounting and marginal costing to calculate the contribution of each product Use your findings from part (a) and appropriate academic references to explain whether the company should stop making product Bozon Use your findings from part (a) and appropriate academic references to explain whether the company should stop making product Carbon Discuss how and why marginal costing calculates contribution to pay overheads and why this is…
As indicated in the chapter, return on investment (ROI) is well entrenched in business practice. However, its use can have negative incentive effects on managerial behavior. For example, assume you are the manager of an investment center and that your annual bonus is a function of achieved ROI for your division. You have the opportunity to invest in a project that would cost $420,000 and that would increase annual operating income of your division by $30,000. (This level of return is considered acceptable from top management’s standpoint.) Currently, your division generates annual operating profits of approximately $705,000, on an asset base (i.e., level of investment) of $4,500,000. Required: 1. What is the current return on investment (ROI) being realized by your division (i.e., before considering the new investment)? 2. What would happen to the near-term ROI of your division after adding the effect of the new investment? 3. As manager of this division, given your incentive…
Sometimes compensation packages include bonuses designed to provide performance incentives to employees.The difficulty a bonus can cause accountants is not an accounting problem, but a math problem. The complication is that the bonus formula sometimes specifies that the calculation of the bonus is based in part on the bonusitself. This occurs any time the bonus is a percentage of income because expenses are components of income,and the bonus is an expense.Regalia Fashions has an incentive compensation plan through which a division manager receives a bonus equalto 10% of the division’s net income. Division income in 2018 before the bonus and income tax was $150,000. Thetax rate is 30%.Required:1. Express the bonus formula as one or more algebraic equation(s).342. Using these formulas, calculate the amount of the bonus.3. Prepare the adjusting entry to record the bonus compensation.4. Bonus arrangements take many forms. Suppose the bonus specifies that the bonus is 10% of the…
You are the new cost accountant for ABX Corporation. After careful review of the company’s operations you have been tasked to determine the company’s break-even point in units and dollars, the numbers sold to meet the company’s target profit and contribution income statement for both outcomes.Management has also asked that you discuss the risk, uncertainty, changing variables and margin of safety regarding Cost Volume Profit Analysis. Based on your discussion and calculations what would be your recommendation if the company wanted to increase variable cost by 20% and sales price by 5%? Support your recommendation. ABX Corporation sold it's product for $600/unit. Fixed cost are $725,000 per year. Variable costs are $455 per unit. ABX Corporation desires a target profit of $1,250,000 per year.
You are the new cost accountant for ABX Corporation. After careful review of the company's operation you have been tasked to determine the company's break-even point in units and dollars, the numbers sold to meet the company's target profit and contribution income statement for both outcomes. Management has also asked that you discuss the risk, uncertainty, changing variables and margin of safety regarding Cost Volume Profit Analysis. Based on your discussion and calculations what would be your recommendation if the company wanted to increase variable cost by 20% and sales price by 5%? Support your recommendation. Company's Data: ABX Corporation sold it's production for %600/unit. Fixed cost are $725,000 per year. Variable costs are $455 per unit. ABX Corporation desires a target profit of $1,250,000 per year.

SEE MORE QUESTIONS

Recommended textbooks for you

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

Principles of Cost Accounting

Accounting

ISBN:

9781305087408

Author:

Edward J. Vanderbeck, Maria R. Mitchell

Publisher:

Cengage Learning

Managerial Accounting

Accounting

ISBN:

9781337912020

Author:

Carl Warren, Ph.d. Cma William B. Tayler

Publisher:

South-Western College Pub

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

Principles of Cost Accounting

Accounting

ISBN:

9781305087408

Author:

Edward J. Vanderbeck, Maria R. Mitchell

Publisher:

Cengage Learning

Managerial Accounting

Accounting

ISBN:

9781337912020

Author:

Carl Warren, Ph.d. Cma William B. Tayler

Publisher:

South-Western College Pub

Financial And Managerial Accounting

Accounting

ISBN:

9781337902663

Author:

WARREN, Carl S.

Publisher:

Cengage Learning,

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Essentials of Business Analytics (MindTap Course …

Statistics

ISBN:

9781305627734

Author:

Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS