Compensation;Review of Chapter 19 Products Inc.manufactures furniture and is organized into three large divisions: bedroom,living room,and dining room furniture.The following information presents operating revenues,operating incomes and invested assets of the company over the last three years.(all figures in 000s)

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The following table shows the number of managers covered by the current compensation package of Products Inc.: 11ea6e70_bd9a_c246_8f54_493a11ba4cb8_TB1699_00 
The current compensation package is an annual bonus award.The managers share in the bonus pool.The pool is calculated as 12% of the annual residual income of the company.The residual income is defined as operating income minus an interest charge of 15% of invested assets.Required:(1)Use investment turnover,return on sales,and ROI to explain the differences in profitability of the three divisions.(2)Compute the bonus amount to be paid during each year.Also,compute the (average)individual executive bonus amounts.(3)If the bonus were calculated by divisional residual income what would be the bonus amounts (4)Discuss the benefits and problems of basing the bonus on residual income of a company compared to using divisional residual income.
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 Feedback: (1) 11ea6e70_bd9a_e957_8f54_0961fc9a456a_TB1699_00 (2)(Operating Income - (.15 x Invested Assets))x .12 = Bonus Amount
Products Inc.(multiply each bonus by 1,000 since all figures in the information above are in thousands)
2009 [4,150 - (.15 x 19,000)] x .12 x 1000 = $156,000
2010 [5,500 - (.15 x 19,600)] x .12 x 1000 = $307,200
2011 [4,000 - (.15 x 19,600)] x .12 x 1000 = $127,200
Bonus Amount/Number of Executives = Average Bonus
2009 $156,000/460 = $339
2010 $307,200/530 = $580
2011 $127,200/587 = $217
(3)Dining Room
2009 [2,500 - (.15 x 12,000)] x .12 x 1,000 = $84,000
2010 [3,100 - (.15 x 12.500)] x .12 x 1,000 = $147,000
2011 [1,800 - (.15 x 12,500)] x .12 x 1,000 = $-9,000
Living room
2009 [450 - (.15 x 2,500)] x .12 = x 1,000 = $9,000
2010 [900 - (.15 x 2,400)] x .12 = x 1,000 = $64,800
2011 [600 - (.15 x 2,200)] x .12 = x 1,000 = $32,400
Bedroom
2009 [1,200 - (.15 x 4,500)] x .12 = x 1,000 = $63,000
2010 [1,500 - (.15 x 4,700)] x .12 = x 1,000 = $95,400
2011 [1,600 - (.15 x 4,900)] x .12 = x 1,000 = $103,800
(4)Pros: The company wide bonus plan promotes the sharing of corporate-wide assets.The bonus plan also helps to keep talented managers that are running divisions that are not able to perform up to expectations.Cons: The company-wide bonus plan includes many factors not under the control of each divisional managers.The bonus plan also penalizes executives of profitable divisions that do not receive the total benefit because of unprofitable divisions.