Question: Brett Stern was hired during January 2017 to manage the home products division of Hi-TechProducts. As part of his employment contract, he was told that he would get $5,000 of additionalbonus for every 1% increase that the division's prof ts exceeded those of the previous year. Soon after coming on board, Brett met with his plant managers and explained that he wantedthe plants to be run at full capacity. Previously, the plant had employed just-in-time inventory prac-tices and had consequently produced units only as they were needed. Brett stated that under pre-vious management the company had missed out on too many sales opportunities because it didn'thave enough inventory on hand. Because previous management had employed just-in-time inven-tory practices, when Brett came on board there was virtually no beginning inventory. The sellingprice and variable costs per unit remained the same from 2016 to 2017. Additional information isprovided below.
Instructions: (a) Calculate Brett's bonus based upon the net income shown above.
(b) Recompute the 2016 and 2017 results using variable costing.
(c) Recompute Brett's 2017 bonus under variable costing.
(d) Were Brett's actions unethical? Do you think any actions need to be taken by the company?
272 6 Cost-Volume-Prof t Analysis: Additional Issues 2016 2017 Net income $ 300,000 $ 525,000 Units produced 25,000 30,000 Units sold 25,000 25,000 Fixed manufacturing overhead costs $1,350,000 $1,350,000 Fixed manufacturing overhead costs per unit $ 54 $ 45