Intermediate Accounting, Volume 1
17th Edition
ISBN: 9781119613695
Author: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Publisher: WILEY
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The sales manager is deciding between two possible compensation structures for sales staff. Under one plan, salespeople would receive a base compensation of $80,000 per year plus a 1% commission on all sales to their customers. Under the other plan, the base compensation would drop to $40,000 per year, but the commission rate would increase to 5%. What are the advantages and disadvantages, to the company of both plans? As the accounting manager, would you have a preference? Why or why not? (answer in text form please (without image), Note: .Every entry should have narration please)
GRB Ltd has several product lines with a manager in charge of each product line. The
managers are paid a bonus based on the net income generated by their product line. Rubica
(the CEO of GRB Ltd) was going through the financial reports of the 2nd quarter of 2021 to
analyse the performance of the product lines. For 'Sweets' one of the largest product lines of
GRB Ltd, Rubica noted that while the sales declined from $800,000 in quarter 1 to $600,000
in quarter 2, the product line manager of Sweets received a bonus larger than the 1st quarter.
The manager of Sweets division was eligible for a higher bonus due to an operating profit
increase from $90,000 in the 1st quarter to $120,000 in the 2nd quarter. Rubica wondered how
the product line manager was entitled to a higher bonus with a decline in sales. Rubica also
wants to know how net income increased with a decline in sales.
Rubica found the following data from the financial reports of 'Sweets':
Particulars
Quarter 2
Quarter 1
Units…
Alternative Compensation Plans ADM Inc., an electronics manufacturer, uses growth in earnings per share (EPS) as a guideline for evaluating executive performance. ADM executives receive abonus of $5,000 for every penny increase in EPS for the year. This bonus is paid in addition to fixedsalaries ranging from $500,000 to $900,000 annually. Cygnus Corporation, a computer componentsmanufacturer, also uses EPS as an evaluation tool. Its executives receive a bonus equal to 40% oftheir salary for the year if the firm’s EPS is in the top third of a list ranking the EPS for Cygnus andits 12 competitors.Required1. Why are companies such as ADM and Cygnus switching from stock option incentives to programs morelike the ones described? What does the use of these plans by the two firms say about each firm’s competitive strategy?2. What are the weaknesses of incentive plans based on EPS?
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