Question

Ben Johnson is the manager of the jewelry department of a large chain of department stores. The department store has succeeded on the basis of customer service and quality of merchandise. As a manager, Ben is compensated with a salary of $310,000 and a bonus based on his unit's income. The bonus pool is 10% of companywide net income. When the unit's return on invested assets exceeds the rate of return of the whole company, the unit manager is included in the bonus pool; the bonus pool is divided evenly among the managers that qualify for the bonus. Selected information about the department store and Ben's performance is as follows. Customer service is measured on a 6-point scale, with 6 being the highest rating, quality of service is measured on a 10-point scale, with 10 being the highest rating. In the current period, 25 managers qualified for the bonus, including Ben. Jewelry Department Whole Company $ $ 2,008,000 $ 17,600,000 $ 23,600,000 $288,600,000 42 Stock price Net income Assets invested Customer service Quality of service Total revenue $ 3,610,000 $124,700,000 Required: Based on the above information, what is the amount of total compensation for Ben? $310,000 $383,150 $380,400 O $392,400

Answer 1

Answer:

The correct answer is (C) $380,400.

Unit's return on invested assets = 2008000/23600000*100 = 8.51%

rate of return of the whole company = 17600000/288600000*100 = 6.10%

since unit's return on invested assets is more than rate of return of the whole company, Ben will be included in the bonus pool.

total bonus = 10% of 17600000= $1,760,000

Ben's bonus = 1760000/25 = $70,400

Ben's total compensation = Salary of $310000 + Bonus of $70,400 = $380,400.