This is the only information I was given to find the answers MedLine Equipment C

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This is the only information I was given to find the answers

MedLine Equipment Corporation specializes in the manufacture of medical equipment, a field that has become increasingly competitive. Approximately two years ago, Ben Harrington, president of MedLine, became concerned that the company's bonus plan which focused on division profitability, was not helping MedLine remain competitive. Harrington decided to implement a gain-sharing plan that would encourage employees to focus on operational 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 semiannually on the following basis. The bonuses are distributed among the relevant employees according to a formula developed by the division manager . Profitability: Two percent of operating income . Rework: Costs in excess of 2 percent of operating income are deducted from the bonus amount. . On-time delivery: $12,500 if over 98 percent of deliveries are on time, $6,500 if 96 to 98 percent of deliveries are on time, and no increment if on-time deliveries are below 96 percent. Sales returns: $7,500 if returns are less than 1.5 percent of sales. Fifty percent of any amount in excess of 1.5 percent of sales is deducted from the bonus amount. . Note: If the calculation of the bonus results in a negative amount for a particular period, there is no bonus, and the negative amount is not carried forward to the next period The revised bonus plan was implemented on January 1, 20x1. Presented in the following table are the results for two of Medline's divisions, Charter and Mesa Divisions, for the first year under the new bonus plan. Both of these divisions had similar sales and operating income results for the prior year, when the old bonus plan was in effect. Based on the 20xO results, the employees of the Charter Division earned a bonus of $56,620 while the employees of the Mesa Division earned $49,195

Explanation / Answer

Answer 1 a. Charter Division Calculation of Semiannual Installments & Total Bonus Awarded for 20X1 First half Second Half Profitability: 2% of Operating Income First Half = $951,500 X 2% $19,030 Second Half = $905,000 X 2% $18,100 Rework: First Half = $24500 - ($951,500 X 2%) -$5,470 Second Half = $23500 - ($905,000 X 2%) -$5,400 On-Time Delivery First Half = No Bonus - Below 96%                           -   Second Half = $6500 (96% to 98%) $6,500 Sales Return First Half = [($8,650,000 X 1.5%) - $169,000] X 50% -$19,625 Second Half = [($9,050,000 X 1.5%) - $145,000] X 50% -$4,625 Total Semiannual Bonus -$6,065 $14,575 Total Bonus for the year $8,510 Answer 1b. After the implementation of the revised bonus Palan, the employees of the Charter Division are likely to be: Frustrated Answer 2 a. Mesa Division Calculation of Semiannual Installments & Total Bonus Awarded for 20X1 First half Second Half Profitability: 2% of Operating Income First Half = $714,000 X 2% $14,280 Second Half = $847,000 X 2% $16,940 Rework: First Half = $13000 - ($714,000 X 2%) $1,280 Second Half = $16500 - ($847,000 X 2%) $440 On-Time Delivery First Half = $12500 - Above 98.7% $12,500 Second Half = $0 - Below 96% $0 Sales Return First Half = [($5,950,000 X 1.5%) - $94,500] X 50% -$2,625 Second Half = [($6,050,000 X 1.5%) i..e.90750 and actual Return 87500 $7,500 Total Semiannual Bonus $25,435 $24,880 Total Bonus for the year $50,315 Answer 2b. After the implementation of the revised bonus Palan, the employees of the Mesa Division are likely to be: Satisfied

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