compensation plan

Two months ago, the owner of a car dealership (and a current football star) significantly changed his sales manager’s compensation plan. Under the old plan, the manager was paid a salary of $6,000 per month; under the new plan, she receives 2 percent of the sales price of each car sold. During the past two months, the number of cars sold increased by 40 percent, but the dealership’s margins (and profits) significantly declined. According to the sales manager, “Consumers are driving harder bargains and I have had to authorize significantly lower prices to remain competitive.” What advice should you give the owner of the dealership?

Increase the percentage of the sales price the manager receives.
Offer the manager a percentage of profits rather than sales.
Pay the manager a fixed salary only.
Problem 01-21 (Essay, Autogradable)
Brazil points to its shrimp-farming industry as an example of how it can compete in world markets. One decade ago, Brazil exported a meager 400 tons of shrimp. Today, Brazil exports more than 58,000 tons of shrimp, with approximately one-third of that going to the United States. Brazilian shrimp farmers, however, potentially face a new challenge in the upcoming years. The Southern Shrimp Alliance – a U.S. organization representing shrimpers – filed a dumping complaint alleging that Brazil and five other shrimp-producing countries are selling shrimp below “fair market value.”

The organization is calling for the United States to impose a 300 percent tariff on all shrimp entering the United States’ borders. Brazilian producers and the other five countries named in the complaint counter that they have a natural competitive advantage such as lower labor costs, availability of cheap land, and a more favorable climate, resulting in a higher yield per acre and permitting three harvests per year. In what many see as a bold move, the American Seafood Distributors Association – an organization representing supermarkets, shrimp processors, and restaurants – has supported Brazilian and other foreign producers, arguing that it is the Southern Shrimp Alliance that is engaging in unfair trade practices.

What type of rivalry exists between U.S.-based shrimp producers (represented by the Southern Shrimp Alliance) and foreign shrimp producers?

What type of rivalry exists between the members of the American Seafood Distributors Association and the U.S.-based shrimp producers?

Problem 01-19 (Essay, Autogradable)
You are the manager in charge of global operations at BankGlobal – a large commercial bank that operates in a number of countries around the world. You must decide whether or not to launch a new advertising campaign in the U.S. market. Your accounting department has provided the accompanying statement, which summarizes the financial impact of the advertising campaign on U.S. operations. In addition, you recently received a call from a colleague in charge of foreign operations, and she indicated that her unit would lose $8 million if the U.S. advertising campaign were launched. Your goal is to maximize BankGlobal’s value.

Pre-Advertising Campaign

Post-Advertising Campaign

Total Revenues

$18,610,900

$31,980,200

Variable Cost

TV Airtime

5,750,350

8,610,400

Ad development labor

1,960,580

3,102,450

Total variable costs

7,710,930

11,712,850

Direct Fixed Cost

Depreciation – computer equipment

1,500,000

1,500,000

Total direct fixed cost

1,500,000

1,500,000

Indirect Fixed Cost

Managerial salaries

8,458,100

8,458,100

Office supplies

2,003,500

2,003,500

Total indirect fixed cost

$10,461,600

$10,461,600

Should you launch the new campaign?