CarniTrin is a manufacturer of Carnival costumes in a highly competitive market. The

company's management team is seeking guidance on the use of financial performance

measures to identify the key drivers of the company's financial performance and develop a

strategy to improve it$.$

The following data relate to the company for the year $2022$:

$$ In its clothing division, the company has $$6,000,000$ invested in assets. After$-$tax

operating income from sales of clothing in $2022$ is $$900,000.$ Income for the clothing

division has grown steadily over the last few years.

$$ The cosmetics division has $$14,000,000$ invested in assets and an after$-$tax operating

income in $2022$ of $$1,900,000.$

$$ The weighted$-$average cost of capital for CarniTrin is $10\%$ and the $2021$s after$-$tax

return on investment for each division was $15\%.$

$$ The general manager of CarniTrin has asserted that in the future, managers should

have their compensation structure aligned with their performance measures with no

fixed salaries. However, the general manager has told the manager of each division

that the better division in $2022$ will get a bonus.

Do you agree with the general manager$$s assertion that managers should be rewarded

only on the basis of their performance measures with no fixed salaries? Explain.

Answer rating: 100% (QA)

The assertion made by the general manager of CarniTrin that managers should be rewarded solely based on their performance measures with no fixed salar... View the full answer