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Pat is the CEO of Company X. Pat has to decide what bonuses to pay for last yea...
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Pat is the CEO of Company X. Pat has to decide what bonuses to pay for last year's extraordinary performance. Find next the preliminary budget analysis provided by the internal control officer:
(only cost the company has is Direct Materials, which is measured in kg).
Actuals | Budgeted | |||
quantity produced and sold | 40 000 | units | 32 000 | units |
price | 33.00 € | per unit | 33.00 € | per unit |
variable cost (only DM) | 12.00 € | per unit | 18.00 € | per unit |
unit cost of one kg of DM | 8.00 € | per kg of DM | 10.00 € | per kg of DM |
Pat decided to use the entire favourable level 0 variance of the contribution margin as a bonus to be distributed over 3 people:
· Claire, which is director of sales, responsible for the volume of sales and the price charged on the market.
· Greg, which is director of procurement, responsible for the price of purchased DM.
· Olaf, which is director of production, responsible for the production costs.
The minimum amount each one receives of the bonus can only be zero. So any unfavourable variance for which any of these are responsible, results in a zero share of the bonus. Split the available level 0 variance amongst the three directors.(Show your calculations for all answers)What is the amount available to be distributed as a bonus? (what is the favourable level 0 variance of the contribution margin) -