MANAGEMENT ACCOUNTING
CONCEPTS AND TECHNIQUES
By Dennis Caplan, University
at Albany (State University of New York)
CHAPTER
21: Budgetary Incentive Schemes
Exercises
and Problems
21-1: The table below represents a bonus scheme, in which the sales representative is given a quota (called the objective), is asked to provide a forecast for her sales volume for the upcoming year, and then is given a bonus (expressed as a percentage of a baseline bonus) based on a combination of her forecast and actual results. The numbers in the grid represent the percentage of the baseline bonus that the sales representative will receive. For example, if the sales representative is given a quota of 300 units and she forecasts that she can sell 600 units, F/O = 2.0, and she will be working from the column with 2.0 in the heading. Then, if she sells 450 units, her bonus will be calculated from the number at the intersection of the column labeled 2.0 and the row labeled 1.5 (A/O = 450/300 = 1.5). The number in that box is 120, so she will receive 120% of the baseline bonus.
|
F/O = forecast ÷
objective |
||||||||||||
|
A/O = Actual ÷ Objective |
|
0 |
0.5 |
1.0 |
1.5 |
2.0 |
2.5 |
3.0 |
3.5 |
4.0 |
4.5 |
5.0 |
|
0 |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
|
|
0.5 |
60 |
30 |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
|
|
1.0 |
90 |
120 |
90 |
60 |
30 |
-- |
-- |
-- |
-- |
-- |
-- |
|
|
1.5 |
120 |
150 |
180 |
150 |
120 |
90 |
60 |
30 |
-- |
-- |
-- |
|
|
2.0 |
150 |
180 |
210 |
240 |
210 |
180 |
150 |
120 |
90 |
60 |
30 |
|
|
2.5 |
180 |
210 |
240 |
270 |
300 |
270 |
240 |
210 |
180 |
150 |
120 |
|
|
3.0 |
210 |
240 |
270 |
300 |
330 |
360 |
330 |
300 |
270 |
240 |
210 |
|
|
3.5 |
240 |
270 |
300 |
330 |
360 |
390 |
420 |
390 |
360 |
330 |
300 |
|
|
4.0 |
270 |
300 |
330 |
360 |
390 |
420 |
450 |
480 |
450 |
420 |
390 |
|
|
4.5 |
300 |
330 |
360 |
390 |
420 |
450 |
480 |
510 |
540 |
510 |
480 |
|
|
5.0 |
330 |
360 |
390 |
420 |
450 |
480 |
510 |
540 |
570 |
600 |
570 |
|
Required: Evaluate this bonus scheme, and discuss in two or three sentences how effective the incentives imbedded in this bonus scheme are likely to be, in terms of motivating the sales representative to provide her best forecast of her sales volume for the upcoming year, and to work hard to achieve and even exceed her forecasted sales volume, once her forecast has been made.
21-2: The table below represents a bonus scheme, in which the sales representative is given a quota (called the objective), is asked to provide a forecast for her sales volume for the upcoming year, and then is given a bonus (expressed as a percentage of a baseline bonus) based on a combination of her forecast and actual results. The numbers in the grid represent the percentage of the baseline bonus that the sales representative will receive. For example, if the sales representative is given a quota of 300 units and she forecasts that she can sell 600 units, F/O = 2.0, and she will be working from the column with 2.0 in the heading. Then, if she sells 450 units, her bonus will be calculated from the number at the intersection of the column labeled 2.0 and the row labeled 1.5 (A/O = 450/300 = 1.5). The number in that box is 180, so she will receive 180% of the baseline bonus.
|
F/O = forecast ÷
objective |
||||||||||||
|
A/O = Actual ÷ Objective |
|
0 |
0.5 |
1.0 |
1.5 |
2.0 |
2.5 |
3.0 |
3.5 |
4.0 |
4.5 |
5.0 |
|
0 |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
|
|
0.5 |
-- |
30 |
60 |
30 |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
|
|
1.0 |
30 |
60 |
90 |
120 |
90 |
60 |
30 |
-- |
-- |
-- |
-- |
|
|
1.5 |
60 |
90 |
120 |
150 |
180 |
150 |
120 |
90 |
60 |
30 |
-- |
|
|
2.0 |
90 |
120 |
150 |
180 |
210 |
240 |
210 |
180 |
150 |
120 |
90 |
|
|
2.5 |
120 |
150 |
180 |
210 |
240 |
270 |
300 |
270 |
240 |
210 |
180 |
|
|
3.0 |
150 |
180 |
210 |
240 |
270 |
300 |
330 |
360 |
330 |
300 |
270 |
|
|
3.5 |
180 |
210 |
240 |
270 |
300 |
330 |
360 |
390 |
420 |
390 |
360 |
|
|
4.0 |
210 |
240 |
270 |
300 |
330 |
360 |
390 |
420 |
450 |
480 |
450 |
|
|
4.5 |
240 |
270 |
300 |
330 |
360 |
390 |
420 |
450 |
480 |
510 |
540 |
|
|
5.0 |
270 |
300 |
330 |
360 |
390 |
420 |
450 |
480 |
510 |
540 |
570 |
|
Required: Evaluate this bonus scheme, and discuss in two to four sentences how effective the incentives imbedded in this bonus scheme are likely to be, in terms of motivating the sales representative to provide her best forecast of her sales volume for the upcoming year, and to work hard to achieve and even exceed her forecasted sales volume, once her forecast has been made.
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to the Table of Contents
Management
Accounting Concepts and Techniques; copyright 2006; most recent update:
November 2010
For a printer-friendly version, contact Dennis Caplan at dcaplan@uamail.albany.edu