Boating Inc. manufactures water vessels and is organized into three large divisions: jet skis, fishing boats, and yachts. The following information presents operating revenues, operating incomes and invested assets of the company over the last three years:
(All figures in 000s.)
The following table shows the number of managers covered by the current compensation package of Boating Inc.: The current compensation package is an annual bonus award. The managers share in the bonus pool. The pool is calculated as 10% of the annual residual income of the company. The residual income is defined as operating income minus an interest charge of 14% of invested assets.
Required:
(1) Compute the bonus amount to be paid during each year. Also, compute (average) individual executive bonus amounts.
(2) If the bonus was calculated by divisional residual income, what would be the bonus amounts?

Question

Boating Inc. manufactures water vessels and is organized into three large divisions: jet skis, fishing boats, and yachts. The following information presents operating revenues, operating incomes and invested assets of the company over the last three years:
(All figures in 000s.)
  The following table shows the number of managers covered by the current compensation package of Boating Inc.:  The current compensation package is an annual bonus award. The managers share in the bonus pool. The pool is calculated as 10% of the annual residual income of the company. The residual income is defined as operating income minus an interest charge of 14% of invested assets.
Required:
(1) Compute the bonus amount to be paid during each year. Also, compute (average) individual executive bonus amounts.
(2) If the bonus was calculated by divisional residual income, what would be the bonus amounts?

Quizplus · Accepted Answer

The Answer of Boating Inc. manufactures water vessels and is organized into three large divisions: jet skis, fishing boats, and yachts. The following information presents operating revenues, operating incomes and invested assets of the company over the last three years:
(All figures in 000s.)
  The following table shows the number of managers covered by the current compensation package of Boating Inc.:  The current compensation package is an annual bonus award. The managers share in the bonus pool. The pool is calculated as 10% of the annual residual income of the company. The residual income is defined as operating income minus an interest charge of 14% of invested assets.
Required:
(1) Compute the bonus amount to be paid during each year. Also, compute (average) individual executive bonus amounts.
(2) If the bonus was calculated by divisional residual income, what would be the bonus amounts?