Maxwell is trying to decide whether to accept a salary of $60,000 or a salary of $25,000 plus a bonus of 20% of net income after salaries and bonus as a means of allocating profit among the partners. Salaries traceable to the other partners are estimated to be $75,000. What amount of income would be necessary so that Maxwell would consider the choices to be equal?

Question

Quizplus · Accepted Answer

Maxwell needs a $35,000 bonus to equate the "salary plus bonus" package to the "salary only" package
Using bonus formula to solve for income:
Bonus
= .2(Income - Bonus - Salary)35,000
= .2Income - [.2 F1F1F1S1F1F1F10 35,000] - [.2 F1F1F1S1F1F1F10 100,000*]
62,000
= .2Income
310,000
= income
*salaries 25,000 + 75,000

Maxwell Is Trying to Decide Whether to Accept a Salary