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Annual Profit-sharing Plan

This is for Accounting utilizing Accounting for Decision Making and Control, 5th edition by Jerold L. Zimmerman

Formula 409

"I used to run the company that made formula 409, the spray cleaner. From modest entrepreneurial beginnings, we'd gone national and shipped the hell out of P&G, Colgate, Drackett, and every other giant that raised its head. From the beginning, I'd employed a simple incentive plan based on 'case sales': every month, every salesman and executive received a bonus check based on how many cases of 409 he'd sold. Even bonuses for the support staff were based on monthly case sales. It was a happy time, with everyone making a lot of money, including me. "We abandoned our monthly case-sales bonus plan and installed an annual profit-sharing plan, based on personnel evaluations. It didn't take long for the new plan to produce results.

Required - what do you think happened at this company after it started the annual profit-sharing plan?

Solution Preview

PLEASE SEE RESPONSE ATTACHED (ALSO PRESENTED BELOW). I HOPE THIS HELPS AND TAKE CARE.

RESPONSE:

Today most large corporations, and many smaller firms, offer an incentive package to all of their employees. A well-designed incentive-pay plan can also help pull people together, help point them in the direction you want them to go, and give that extra push that every company needs in today's competitive environment. From the beginning, this company employed a simple incentive plan based on case sales': every month, every salesman and executive received a bonus check based on how many cases of 409 he'd sold. Even bonuses for the support staff were based on monthly case sales. Although installing an annual profit-sharing plan based on personal evaluations would improve over time, the immediate ...

Solution Summary

Based on a changed incentive plan that moved from monthly case-sales bonus plan and to an annual profit-sharing plan, based on personnel evaluations, this solution discusses what might have happened at this company after it started the annual profit-sharing plan.

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