Household Brands Inc. (HBI) manufactures household goods in the United States. The company made two acquisitions in previous years to diversify their product lines. In 2011, HBI acquired cosmetics and consumer electronics companies. HBI is now, in 2020, comprised of three divisions: cosmetics, household, and consumer electronics. The following information (in thousands of dollars) presents operating revenues, operating income, and invested assets of the company over the last three years:
$\begin{array}{lrrr}&\text { Revenue } & \text { Operating Income } & \text { Assets } \
\text { Cosmetics } & & & \
2018 & \$ 24,500 & \$ 2,300 & \$ 10,000 \
2019 & 22,500 & 1,900 & 10,000 \
2020 & 19,600 & 1,800 & 9,500\
\text { Household } & & & \
2018 & 17,400 & 1,300 & 7,500 \
2019 & 15,300 & 1,100 & 8,000 \
2020 & 12,500 & 900 & 6,500\\text { Electronics } & & & \
2018 & 13,500 & 1,500 & 4,500 \
2019 & 9,500 & 1,100 & 4,500 \
2020 & 8,700 & 1,050 & 4,300\\text { Household Brands Total }\
2018 & 55,400 & 5,100 & 22,000 \
2019 & 47,300 & 4,100 & 22,500 \
2020 & 40,800 & 3,750 & 20,300\
\end{array}$
The current compensation package is an annual bonus award. The senior executives share in the bonus pool. The pool is calculated as 20% of the annual residual income of the company. The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets. Round all calculations to two significant digits.
The total amount of the bonus pool for 2019 is:

Question

Household Brands Inc. (HBI) manufactures household goods in the United States. The company made two acquisitions in previous years to diversify their product lines. In 2011, HBI acquired cosmetics and consumer electronics companies. HBI is now, in 2020, comprised of three divisions: cosmetics, household, and consumer electronics. The following information (in thousands of dollars) presents operating revenues, operating income, and invested assets of the company over the last three years: 
$\begin{array}{lrrr}&\text { Revenue } & \text { Operating Income } & \text { Assets } \
\text { Cosmetics } & & & \
2018 & \$ 24,500 & \$ 2,300 & \$ 10,000 \
2019 & 22,500 & 1,900 & 10,000 \
2020 & 19,600 & 1,800 & 9,500\
\text { Household } & & & \
2018 & 17,400 & 1,300 & 7,500 \
2019 & 15,300 & 1,100 & 8,000 \
2020 & 12,500 & 900 & 6,500\\text { Electronics } & & & \
2018 & 13,500 & 1,500 & 4,500 \
2019 & 9,500 & 1,100 & 4,500 \
2020 & 8,700 & 1,050 & 4,300\\text { Household Brands Total }\
2018 & 55,400 & 5,100 & 22,000 \
2019 & 47,300 & 4,100 & 22,500 \
2020 & 40,800 & 3,750 & 20,300\
\end{array}$
The current compensation package is an annual bonus award. The senior executives share in the bonus pool. The pool is calculated as 20% of the annual residual income of the company. The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets. Round all calculations to two significant digits.
The total amount of the bonus pool for 2019 is:

Quizplus · Accepted Answer

The correct answer is A.The residual income for 2019 is $4,100 - (0.15 * $22,500) = $145,000. The bonus pool is 20% of the residual income, which is $145,000 * 0.20 = $29,000.

Household Brands Inc The Current Compensation Package Is an Annual Bonus Award