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 $180,000 and Michelle’s is $240,000.

The target profit for this year is $6 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 $6 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 $8.5 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

Particulars	Mangolia Manufacturing	Particulars	Kevin	Michelles
Status	Company	Designation	Production Manager	Marketing Manger
Target Profit	6,000,000	Base Salary	180,000	240,000
		Bonus % of Base Salay for every 10 % Increase in Target	1.00%	1.00%
Target Profit	6,000,000	Salary	180,000	240,000
First 10 % Increase	600,000	Bonus 1 %	1,800	2,400
Total Profit after Increase	6,600,000	Total Salary	181,800	242,400
Second 10 % Increase	600,000	Increamental 1 % Bonus	1,800	2,400
Total Profit after 20 % Increase	7,200,000	Total Salary with 2 % Bonus	183,600	244,800
Third 10 % Increase	600,000	Increamental 1 % Bonus	1800	2400
Total Profit after Increase	7,800,000	Total Salary with 3 % Bonus	185,400	247,200
fourth 10 % Increase	600,000	Increamental 1 % Bonus	1800	2400
Total Profit after Increase of 40 %	8,400,000	Total Salary with 4 % Bonus	187,200	249,600
Fifth 10 % Increase	600,000	Increamental 1 % Bonus	1800	2400
Total Profit after Increase of 50 %	9,000,000	Total Salary with 5 % Bonus	189,000	252,000
Any Further Increase	1,200,000	No Increamental Bonus as it exceed 5 %	-	-
Total Profit 20 % on $ 8.5 Million	10,200,000	Total Salary with 5 % Bonus	189,000	252,000
Salary in case of profit is $6Million		A	180000	240000
Salary in case of increase of 20 % in profit .e 7.2 Million		B	183600	244800
Change in Bonus in case of increase in bonus due to change in technology resulting in 20 % Increase in profit ( B - A )			3600	4800	Ans a.
Salary in case of profit is $8.5Million		A	187,200	249,600
Salary in case of increase of 20 % over 8.5 Million in profit .e 102 Million		B	189,000	252,000
Change in Bonus in case of increase in bonus due to change in technology resulting in 20 % Increase in profit ( B - A )			1800	2400	Ans b.