Rozman Construction Supplies Ltd.is preparing the budget for the upcoming year and planning the size of the executive bonus pool.The following table presents budget amounts and their respective probabilities:
The VP Finance is interested in determining the size of the bonus pool for the executive team.The base bonus pool is 10% of operating income, if the company reaches the budget.In addition the VP Finance would like to recommend an additional 20% incentive bonus based on operating income in excess of the budget.Required:
1.Prepare a budget income statement, in contribution margin format, based on the expected values for sales, variable costs, and fixed costs.2.What is the maximum amount that should be budgeted for the executive bonus pool?

Question

Rozman Construction Supplies Ltd.is preparing the budget for the upcoming year and planning the size of the executive bonus pool.The following table presents budget amounts and their respective probabilities:
  The VP Finance is interested in determining the size of the bonus pool for the executive team.The base bonus pool is 10% of operating income, if the company reaches the budget.In addition the VP Finance would like to recommend an additional 20% incentive bonus based on operating income in excess of the budget.Required:
1.Prepare a budget income statement, in contribution margin format, based on the expected values for sales, variable costs, and fixed costs.2.What is the maximum amount that should be budgeted for the executive bonus pool?

Quizplus · Accepted Answer

The Answer of Rozman Construction Supplies Ltd.is preparing the budget for the upcoming year and planning the size of the executive bonus pool.The following table presents budget amounts and their respective probabilities:
  The VP Finance is interested in determining the size of the bonus pool for the executive team.The base bonus pool is 10% of operating income, if the company reaches the budget.In addition the VP Finance would like to recommend an additional 20% incentive bonus based on operating income in excess of the budget.Required:
1.Prepare a budget income statement, in contribution margin format, based on the expected values for sales, variable costs, and fixed costs.2.What is the maximum amount that should be budgeted for the executive bonus pool?