Magnolia Manufacturing makes wing components for large aircraft.Kevin Choi is the pro-

duction manager, responsible for manufacturing, and MichelleMichaels is the marketing

manager. Both managers are paid a flat salary and are eligiblefor a bonus. The bonus is

equal to 1 percent of their base salary for every 10 percentprofit that exceeds a target. The

maximum bonus is 5 percent of salary. Kevin’s base salary is$180,000 and Michelle’s is

$240,000.

The target profit for this year is $6 million. Kevin has readabout a new manufacturing

technique that would increase annual profit by 20 percent. He isunsure whether to employ the

new technique this year, wait, or not employ it at all. Usingthe new technique will not affect

the target.

Required

a. Suppose that profit without using the technique this yearwill be $6 million. By how much

will Kevin’s bonus change if he decides to employ the newtechnique? By how much will

Michelle’s bonus change if Kevin decides to employ the newtechnique?

b. Suppose that profit without using the technique this yearwill be $8.5 million. By how

much will Kevin’s bonus change if he decides to employ the newtechnique? By how much

will Michelle’s bonus change if Kevin decides to employ the newtechnique?

c. Suppose that profit without using the technique this yearwill be $4.8 million. By how

much will Kevin’s bonus change if he decides to employ the newtechnique? By how much

will Michelle’s bonus change if Kevin decides to employ the newtechnique?

d. Is it ethical for Kevin to consider the impact of the newtechnique on his bonus when

deciding whether or not to use it? Explain.

e. Assess the management control system used at MagnoliaManufacturing and provide

recommendations for changes, if any are required. Be sure todiscuss:

• Decision authority

• Performance measures

• Compe nsation