Discussion Questions for Birch Paper Company
Answer each of the following questions independently.
1.Which bid should Norhern Division accept?
2.Should Thompson Division lower its price? If so, to what? 3.What should the Commercial V.P. do?
Case 23-5, Berkshire Industries
1. Were Berkshire’s motivations for a new incentive system reasonable? If so, what were their main options for a new system? Was an economic profit-focused system a reasonable choice? 2.Use the data pertaining to the Snack Food Division, as shown in Exhibit TN-
1, to calculate:
a. Economic profit for the division for 2000 and 2001.
b. The economic profit target for the division for 2001.
c. The division manager’s bonus payout (% of salary) for 2000 and 2001. (Assume that the slope of the payoff line for 2000 was arbitrarily set by Berskshire management to equal 1.0). 3.Assume the base salary of the manager of the Snack Foods Division was ₤120,000 in both 2000 and 2001. How much cash would the manager receive from his bonus payouts in 2000 and 2001? 4.Evaluate the Berkshire Industries’ new incentive plan. What changes would
you recommend, if any?
5.Should Mr. Embleton make special adjustments of the economic profit figures or the bonus payouts for personnel in the Spirits Division in 2000 and 2001? Why or why not?
Sub-Micron Devices (take-home graded case, not due on April 10) Anwer the questions provided in the case.