Question

Magnolia Manufacturing makes wing components for large aircraft. Kevin Choi is the production manager, responsible for manufacturing, and Michelle Michaels is the marketing manager. Both managers are paid a flat salary and are eligible for a bonus. The bonus is equal to 1 percent of their base salary for every 10 percent profit that exceeds a target. The maximum bonus is 5 percent of salary. Kevin's base salary is $270,000 and Michelle's is $330,000. The target profit for this year is $9 million. Kevin has read about a new manufacturing technique that would increase annual profit by 20 percent. He is unsure whether to employ the new technique this year, wait, or not employ it at all. Using the new technique will not affect the target. Required: a. Suppose that profit without using the technique this year will be $9 million. By how much will Kevin's and Michelle's bonus change if Kevin decides to employ the new technique? (Enter your answers in dollars, not in millions.) Bonus Change Kevin's Michelle's b. Suppose that profit without using the technique this year will be $11.5 million. By how much will Kevin's and Michelle's bonus change if Kevin decides to employ the new technique? (Round your intermediate percentage answers to nearest whole percent. Enter your answers in dollars, not in millions.) Bonus Change Kevin's Michelle's

Answer 1

Que a:
Ans:
Profit before using technique 9000000
Using of new technique woud increase profit by 20%
New profit would be 9000000+20%
New profit= 10800000
Target profit =	9000000
New profit =	10800000
Increase in profit =	1800000
Increase in profit IN % =	20%
Since 1% bonus will be paid for every 10% increase in profit
Here 2% bonus is to paid due to that 20 % increase in profit
Emp. Name	Bonus change
Kevin's	5400
Michell's	6600
Que b:
Ans:
Profit before using technique 11500000
Using of new technique woud increase profit by 20%
New profit would be 11500000+20%
New profit= 13800000
Target profit =	9000000
New profit =	13800000
Increase in profit =	4800000
Increase in profit IN % =	53%
Since 1% bonus will be paid for every 10% increase in profit
Here 5% bonus is to paid due to that 53 % increase in profit
Emp. Name	Old Bonus_2%	New bonus_5%	Bonus change
Kevin's	5400	13500	8100
Michell's	6600	16500	9900

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Answer 2

a. 3,600  4,800

b.5,400  7,200