Financial and nonfinancial performance measures, goal congruence. (CMA, adapted) Precision Equipment specializes in the manufacture of medical equipment, a field that has become increasingly competitive. Approximately 2 years ago, Pedro Mendez, president of Precision, decided to revise the bonus plan (based, at the time, entirely on operating income) to encourage division managers to focus on areas that were important to customers and that added value without increasing cost. In addition to a profitability incentive, the revised plan includes incentives for reduced rework costs, reduced sales returns, and on-time deliveries. The company calculates and rewards bonuses semiannually on the following basis: A base bonus is calculated at $2 \%$ of operating income; this amount is then adjusted as:
a. (i) Reduced by excess of rework costs over and above $2 \%$ of operating income
(ii) No adjustment if rework costs are less than or equal to $2 \%$ of operating income
b. (i) Increased by $$\$ 4,000$$ if more than $98 \%$ of deliveries are on time, and by $$\$ 1,500$$ if $96-98 \%$ of deliveries are on time
(ii) No adjustment if on-time deliveries are below $96 \%$
c. (i) Increased by $$\$ 2,500$$ if sales returns are less than or equal to $1.5 \%$ of sales
(ii) Decreased by $50 \%$ of excess of sales returns over $1.5 \%$ of sales
Note: If the calculation of the bonus results in a negative amount for a particular period, the manager simply receives no bonus, and the negative amount is not carried forward to the next period.
Results for Precision's Central division and Western division for 2013, the first year under the new bonus plan, follow. In 2012, under the old bonus plan, the Central division manager earned a bonus of $$\$ 20,295$$ and the Western division manager, a bonus of $$\$ 15,830$$.
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