See attached file for full case description.
The CEO has given you an assignment to devise a different method of allocating home office expenses to the consulting offices that will give the right incentives to office managing directors, and that will avoid giving them the wrong incentives, to maximize firm profits.
See the attached file for tables.
I have attached the way I would do it, considering that the CEO does not like the idea of using the sales revenue number. Actually, I do think that using sales revenue as the number to allocate home office expenses would be fine as long as the General Manager is incentivized based on the profitability of his office. In this way, lowering price for projects would not increase his profitability and lowers his bonus. But nonetheless, we will assume we will ...