Managerial Accounting

In 2009, the total annual bonuses for the year earned by the managers of SID and Ultrasound were approximately £85,000 and £74,000, respectively.

Exhibit 1 Harwood Medical Instruments PLC

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Operating results for the surgical Instruments and Ultrasound Diagnostic Equipment Divisions, 2010 (£ in 000s)

Surgical Instruments Division Ultrasound Diagnostic Equipment Division
1st half of 2010 2nd half of 2010 1st half of 2010 2nd half of 2010
Sales £42,000 £44,000 £28,600 £29,000
Operating profit £4,620 £4,400 £3,420 £4,060
On-time deliveries 95.4% 97.3% 98.2% 94.6%
Sales returns £450 £420 £291 £289
Patent applications filed 0 1 4 8
Scrap and rework costs £51.1 £45.0 £39.7 £28.2
Customer satisfaction (average) 78% 89% 81% 91%

Assignment Questions

1. Critically analyze the current reward system that Harwood Medical Instruments PLC uses to award the bonus.

2. Calculate the bonus earned by each manager of the two Divisions for each 6-month period and for the year 2010 (i.e. total bonus) [Note: the figures are in thousands; (£’000s)].

3. (i) Design a performance measurement reward system that would encapsulate a rather “more balanced” approach in awarding of bonuses.

(ii) Briefly explain how the reward system you design in 3(i) can be used to award bonus.

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