Questions -

Q1) A company has an incentive plan includes an annual bonus range from 7 to 40% of division managers salaries. There is an element of relative performance evaluation in that the target earnings for each year are based on how well companies in the same industry are performing. Once the target is set it is not changed during the year. Failing to meet a division target has serious consequences for the division manager. First the manager loses some or all of the potential bonus. Second, a manager who misses a target will find her job in jeopardy. Missing a target 2 years in a row meaning the manager will be fired

a) What incentive does this plan give to division manager?

b) Is this a good plan? Would you want to be a division manager in this company?

Q2) One of the author of this book has a sandwich shop where one person makes the sandwich and the other person rings up the sale and take the customers cash. At first this author thought that having 2 people involved had smt to do with him. After carefully observing the shop operation, he observed that 2 employees were involved in every sandwich production and sale. The person who made the sandwich did not ring up the sale or take the money from the sale.

a) What type of internal control in this example? Why is this shop owner provide that internal control?

b) Is there an even better internal control?

c) Could the employees get around this internal control?

Q3) Commonly in many organization when more than one employee from the organization is having a business meal paid by the organization, the most senior person ( in term of authority not age) pays the bill and submit it for reimbursement

a) What type of internal control in this example? Why is some form of internal control needed in this case?

b) Is there an alternative internal control that might be effective?

c) Could the employees get around this internal control?