Magnolia Manufacturing makes wing components for large aircraft. Kevin Choi is the production manager, responsible for manufacturing,
Question:
The target profit for this year is $5 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 $5 million. By how much will Kevin’s bonus change if he decides to employ the new technique? By how much will Michelle’s bonus change if Kevin decides to employ the new technique?
b. Suppose that profit without using the technique this year will be $7 million. By how much will Kevin’s bonus change if he decides to employ the new technique? By how much will Michelle’s bonus change if Kevin decides to employ the new technique?
c. Suppose that profit without using the technique this year will be $4 million. By how much will Kevin’s bonus change if he decides to employ the new technique? By how much will Michelle’s bonus change if Kevin decides to employ the new technique?
d. Is it ethical for Kevin to consider the impact of the new technique on his bonus when deciding whether or not to use it? Explain.
e. Assess the management control system used at Magnolia Manufacturing and provide recommendations for changes, if any are required. Be sure to discuss:
• Decision authority
• Performance measures
• Compensation
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Related Book For
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher
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