Test Bank Chapter 9 Behavioral Mgmt Accounting Issues

Chapter 9

Behavioral and Organizational Issues

in Management Accounting

and Control Systems

Learning Objectives―Coverage by question type

LO1 – Understand the meaning of control.

True / False Multiple Choice Exercises, Problems & Short Answer

1-5 1-6 None

LO2 – Identify the characteristics of well-designed management accounting and control systems.

True / False Multiple Choice Exercises, Problems & Short Answer

6, 7 7-13 None

LO3 – Discuss key behavioral considerations in the design of a management accounting and control system.

True / False Multiple Choice Exercises, Problems & Short Answer

8 14-18 1, 2

LO4 – Explain the human resources management model of motivation.

True / False Multiple Choice Exercises, Problems & Short Answer

9-11 19-21 3

LO5 – Apply the ethical control framework to decisions.

True / False Multiple Choice Exercises, Problems & Short Answer

12-18 22-30 4

LO6 – Discuss task and results control methods.

True / False Multiple Choice Exercises, Problems & Short Answer

19-23 31-42 5

Continued

LO7 – Understand how the balanced scorecard can be used to align employees to corporate and business unit objectives.

True / False Multiple Choice Exercises, Problems & Short Answer

24 43 None

LO8 – Discuss motivation and dysfunctional behavior in management control systems.

True / False Multiple Choice Exercises, Problems & Short Answer

25 44 None

LO9 – Discuss the importance of employee empowerment in the design of management accounting and control systems.

True / False Multiple Choice Exercises, Problems & Short Answer

26 45 None

LO10 – Recognize the behavioral issues in budgeting.

True / False Multiple Choice Exercises, Problems & Short Answer

27-29 46-51 6-8

LO11 – Discuss the links between different incentive systems and performance.

True / False Multiple Choice Exercises, Problems & Short Answer

30-37 52-78 9, 10

Chapter 9: Behavioral and Organizational Issues in Management Accounting and Control Systems

True / False

LO1

Terms: Management accounting and control systems

Difficulty: 1

1. A system is in control if it is on the path to achieving its strategic objectives.

Difficulty: 1

1. For the process of control to have meaning, the organization must be able to identify and correct out-of-control situations.

Difficulty: 1

1. The organization generates information that helps decision makers assess whether the MACS is achieving its objectives.

Difficulty: 1

1. Monitoring is the process of measuring the system's current level of performance.

Difficulty: 1

1. The term control in management accounting and control refers to the set of procedures, tools, performance measures, systems, and incentives that organizations use to guide and motivate all employees to achieve organizational objectives.

Difficulty: 2

1. A well-designed management accounting and control system should focus strictly on long-term quantitative performance measures.

Difficulty: 1

1. A well-designed management accounting and control system should incorporate the organization's ethical code of conduct.

Difficulty: 1

1. A major role for management accounting and control systems is to motivate behavior consistent with the desires of the organization.

Difficulty: 1

1. When management implements their own ideas without involving employees, goal congruence may not occur.

Difficulty: 2

1. Companies who adopt a MACS generally agree with the human resources model of motivation.

Difficulty: 1

1. Individuals are motivated by both financial and nonfinancial means of compensation.

Difficulty: 1

1. Ethics is a discipline that focuses on the investigation of standards of conduct and moral judgment.

Difficulty: 1

1. A primary purpose of an organization's code of ethics is to encourage behavior that is consistent with the company's ethical and cultural norms.

Difficulty: 1

1. An organization's code of ethics should not be integrated into the management accounting and control system design.

Difficulty: 1

1. The text reported survey results that linked cheating during a game of golf to unethical conduct on the job.

Difficulty: 2

1. Monitoring focuses on measuring employee performance against stated objectives.

Difficulty: 1

1. Consequences resulting from violating an organization's code of ethics should intentionally be vague to allow for maximum flexibility.

Difficulty: 1

1. If the organization's code of ethics is more stringent than an individual's code of ethics, conflicts may arise.

Difficulty: 1

1. Careful attention to motivation is a key step for the organization and its employees to align their respective goals.

Difficulty: 2

1. The human resources model of motivation is strongly influenced by Japanese management practices.

Difficulty: 2

1. The scientific school of management recognizes that employees want respect and a feeling that they make an important contribution.

Difficulty: 2

1. Video surveillance is an example of results control.

Difficulty: 1

1. A recent survey conducted by the American Management Association showed that the monitoring of company employees is decreasing due to privacy issues.

Difficulty: 1

1. Hierarchical organizations with many layers of management are referred to as flat organizations.

Difficulty: 1

1. Smoothing is a form of earnings management.

Difficulty: 2

1. Intrinsic rewards are any rewards that one person provides to another to recognize a job well done.

Difficulty: 1

1. When the operating budget is used as a control device, managers are more likely to be motivated to budget higher sales than actually anticipated.

Difficulty: 2

1. Budgeting slack is most likely to occur when a firm uses the budget only as a planning device and not for control.

Difficulty: 1

1. Authoritative budgeting occurs when a superior simply tells subordinates what their budget will be.

Difficulty: 1

1. Gain sharing is a system for distributing cash bonuses from a pool when the total amount available is a function of performance relative to some target.

Difficulty: 1

1. For some employees, pay may not be a motivator.

Difficulty: 2

1. Management accounting must gather relevant and reliable performance information to administer intrinsic rewards.

Difficulty: 1

1. Outcome-based incentive compensation systems can only be used to motivate appropriate decision-making behavior when employees are empowered to understand the compensation system.

Difficulty: 1

1. An example of an intrinsic reward is recognizing employee accomplishment with a plaque.

Difficulty: 1

1. Profit sharing rewards short-term performance while stock options attempt to reward long-term performance.

Difficulty: 1

1. An incentive-based reward system is only effective if employees understand how to improve their measured performance.

Difficulty: 2

1. Stock option plans provide incentive compensation to the participants when the stock price falls.

Difficulty: 2

1. Which best describes the control function in a management accounting and control system?

A) MACS seeks out areas that are out-of-control but not for corrective action.

B) MACS achieves cost reduction targets that are continually adjusted downward.

C) MACS guides and motivates employees to achieve organizational objectives.

D) MACS ensures performance standard goals are being met.

Difficulty: 1

1. The four stages in the process of keeping an organization in control are:

A) planning, doing, checking, and acting.

B) implementing, measuring, monitoring, and correcting.

C) budgeting, implementing, monitoring, and feedback.

D) budgeting, executing, measuring, and evaluation.

Difficulty: 2

1. All of the following are true regarding a control system for a MACS except:

A) a control system includes developing organizational objectives and executing a plan for implementation.

B) a control system includes monitoring the current level of performance and comparing it to the planned level of performance.

C) the same performance measures apply to all organizations.

D) the basic control process applies to all organizations.

Difficulty: 2

1. The “act” stage of the process of control in MACS focuses on:

A) choosing activities to accomplish the firm’s objectives.

B) implementing the firm’s chosen activities.

C) selecting measures to determine how well objectives are met.

D) taking appropriate actions to return the system to an in-control state.

Difficulty: 1

1. The “check” stage of the process of control in MACS focuses on:

A) comparing the planned level to current performance to identify discrepancies and consider corrective measures.

B) measuring the current level of performance.

C) returning the system to an in-control state.

D) selecting measures to determine how well objectives are met.

Difficulty: 1

1. Which best describes the purpose of a management accounting and control system (MACS)?

A) A MACS defines the value chain and identifies nonvalue-added activities for a business.

B) A MACS helps decision makers determine whether strategies and objectives are being met.

C) A MACS offers a system of controls to ensure employees are meeting predetermined standards.

D) A MACS provides a signal for management attention when areas are out-of-control.

Difficulty: 2

1. Behavioral considerations of a well-designed management accounting and control system include all of the following except:

A) short-term qualitative and quantitative measures.

B) incentive compensation.

C) information accuracy.

D) the organization's ethical code of conduct.

Difficulty: 2

1. The two major categories of technical considerations for a management accounting and control system are:

A) design and accuracy of information.

B) relevance of information and scope of system.

C) service and timely information.

D) development and flexibility.

Difficulty: 2

1. The relevance of information in a MACS includes providing all of the following except:

A) the most accurate information possible.

B) a global framework that can be applied uniquely to each division or unit.

C) feedback on performance measures in a timely fashion.

D) different costing methods for each division.

Difficulty: 2

1. Consistency is an important technical consideration for a MACS because:

A) the system includes the organization's ethical code of conduct.

B) the system provides feedback

C) the system needs to be applied globally across all the segments of the organization

D) the system's applications need to be capable of being customized for local decisions.

Difficulty: 1

1. Information is relevant in a MACS if:

A) it can be applied in a flexible manner.

B) it is inaccurate.

C) it is inconsistent.

D) it is late.

Difficulty: 1

1. The characteristic of a management accounting and control system that allows employees to customize applications for local decisions is referred to as being:

A) timely.

B) flexible.

C) accurate.

D) in control.

Difficulty: 1

1. The characteristic of a management accounting and control system that means the language used and the technical methods of producing management accounting information do not conflict within various parts of the organization is referred to as being:

A) in control.

B) accurate.

C) consistent.

D) Kaizen.

Difficulty: 1

1. When implementing a new management accounting and control system, it is best:

A) to allow management to implement their ideas.

B) for management to involve employees in the implementation.

C) to involve consultants and implement their experienced ideas.

D) to engage in benchmarking.

Difficulty: 2

1. In a management accounting and control system design, behavioral expectations are best incorporated by:

A) using a mix of short-term and quantitative performance measures.

B) developing a task-related control system.

C) including the organization's code of conduct.

D) monitoring behavior with time and motion studies.

Difficulty: 2

1. The four key behavioral considerations in management accounting and control system design include all of the following except:

A) integrating the organization's pay scale.

B) using a mix of short- and long-term qualitative and quantitative performance measures.

C) empowering employees to be involved in decision making and MACS design.

D) developing an appropriate incentive system to reward performance.

LO3

Terms: Scientific management school

Difficulty: 1

1. The ____________ assumes that people find work objectionable and should therefore be monitored carefully.

A) MACS

B) Human relations movement

C) Scientific management school

D) HRMM

Difficulty: 1

1. The underlying philosophy of the scientific management school developed at the turn of the century was:

A) to foster a work environment that encouraged creativity.

B) to use multiple performance measures.

C) that people find work objectionable and money is a primary motivator.

D) that employees want to feel they contributed value to their organization.

Difficulty: 1

1. The impetus for developing ways to improve employees' morale and job satisfaction was:

A) the scientific management school.

B) the balanced scorecard.

C) results control system.

D) the human relations movement.

Difficulty: 1

1. Assumptions of the human resources model of motivation include all of the following except:

A) employees prefer to follow highly-detailed, prescribed procedures.

B) individuals are motivated by both financial and nonfinancial awards.

C) employees are knowledgeable about their jobs.

D) individuals are highly creative, ethical, and responsible.

Difficulty: 1

1. The contemporary management view of motivation, the ___________ is based on initiatives to improve the quality of working life.

A) balanced scorecard

B) human resources model of motivation

C) scientific management school

D) results control system

Difficulty: 2

1. At the center of many boundary systems is(are):

A) a set of ethical principles.

B) congruent goals.

C) tasks to control.

D) earnings management.

Difficulty: 1

1. An organization develops a code of ethics primarily because:

A) the code allows for punishment of those who do not follow organizational ethical standards.

B) it helps reduce ethical conflict by avoiding ambiguity and misunderstanding.

C) the management accounting department finds it helpful.

D) it is required by law.

Difficulty: 1

1. According to the hierarchy of ethical principles presented in the text, an action prohibited by ___________ should also be unacceptable to ____________.

A) legal rules, societal norms

B) personal norms, professional memberships

C) organizational norms, societal norms

D) professional memberships, legal rules

Difficulty: 1

1. To promote ethical decision making:

A) consequences of unethical behavior should be left undefined to allow for flexibility.

B) a statement of the organization's code of ethics should be communicated to each employee.

C) violators of the code of ethics should be allowed several warnings before severe consequences are imposed.

D) management should be excused from adhering to the organization's ethical code of conduct when it conflicts with personal values.

Difficulty: 1

1. The elements of an effective ethical control system include all of the following except:

A) a statement of the employee's ethical responsibilities.

B) an ongoing internal audit of the efficiency of the organization's ethical control system.

C) a statement of the organization's values and code of ethics.

D) a reward system for turning in those who violate the organization's ethical code.

Difficulty: 2

1. When a subordinate is caught padding an expense report, the supervisor should first:

A) ignore the incident if it is the first offense.

B) report the incident to the personnel department.

C) confront the employee and ask him to submit a corrected expense report.

D) take action that complies with the organization's code of ethics.

Difficulty: 1

1. If an employee observes management engaging in unethical behavior, the best thing to do first is:

A) ensure the facts are correct.

B) present the facts to the local newspaper.

C) do nothing and hope the problem resolves itself.

D) immediately report the incident to a superior.

Difficulty: 1

1. All of the following encourage ethical behavior among employees except:

A) having a system for employees to point out violations of the organization's code of ethics without fear of retribution.

B) dealing promptly and consistently with persons who violate the organization's code of ethics.

C) exemplary behavior demonstrated by senior management.

D) protecting whistle blowers who report unethical behavior who have also acted unethically.

Difficulty: 2

1. Managers are often subject to intense pressures from their job circumstances to suspend their ethical judgment, which might include all of the choices below except:

A) requests to tailor information to favor particular individuals or groups.

B) pressures to ignore questionable or unethical practices.

C) solicitations for confidential information.

D) pleas to verify reports or test results.

Difficulty: 2

1. All of the following may be implemented to help ensure that an organization attains goal congruence except:

A) performance measures for employees aligned with organizational objectives.

B) employee participation in decision making.

C) employee self-control.

D) a reward system for employees aligned with strategic goals.

Difficulty: 1

1. To help maintain goal congruence, organizations use:

A) preventative control.

B) monitoring.

C) results control.

D) All of the above are correct.

Difficulty: 1

1. The key group of users for an organization's ethical code of conduct is:

A) the board of directors.

B) shareholders.

C) managers.

D) All of the above are governed by the code.

Difficulty: 1

1. Pressures on managers to act unethically include all of the following except:

A) pressures to act in the long-run best interest of the shareholders.

B) solicitations for confidential information.

C) requests to falsify reports.

D) requests to bias information in favor of certain stakeholders.

Difficulty: 1

1. To the extent that an ethical hierarchy exists, ___________ have the highest authority.

A) societal norms

B) legal rules

C) organizational norms

D) personal norms

Difficulty: 1

1. To the extent that an ethical hierarchy exists, ____________ have the least authority.

A) societal norms

B) groups norms

C) personal norms

D) legal rules

Difficulty: 1

1. Codes of ethics developed by professional organizations reflect broad moral principles such as:

A) loyalty.

B) discretion.

C) competence.

D) All of the above are correct.

Difficulty: 1

1. When a manager's and employee's goals are aligned with organizational goals, it is referred to as:

A) a diagnostic control system.

B) the intensity factor.

C) goal congruence.

D) monitoring.

Difficulty: 2

1. Feedback systems that monitor organizational outcomes and correct any deviations from predetermined performance standards are referred to as:

A) a diagnostic control system.

B) the intensity factor.

C) goal congruence.

D) monitoring.

Difficulty: 1

1. Feedback systems that force a dialogue among all organizational participants about the data that are coming out of the system and what to do about the data are called:

A) diagnostic control systems.

B) monitoring.

C) preventative controls.

D) interactive control systems.

Difficulty: 2

1. An interactive control system should be used to achieve goal congruence when:

A) human behavior needs to be controlled.

B) there is a large degree of strategic uncertainty.

C) systems are allowed to run in a routine fashion.

D) the behavior of employees needs to be inspected while they are performing a task.

Difficulty: 2

1. The type of control that focuses on measuring and comparing employee performance against stated objectives is called:

A) task control.

B) monitoring.

C) results control.

D) preventative control.

Difficulty: 1

1. When sales people are evaluated strictly on sales quotas:

A) they will attempt to sell as much high price merchandise as possible.

B) they are likely to have buy-in.

C) they always become unmotivated.

D) none of the above

Difficulty: 2

1. ____________ is when an employee alters his or her actions specifically in an attempt to manipulate a performance indicator.

A) Gaming the performance indicator

B) Data falsification

C) Smoothing

D) Change management

Difficulty: 1

1. Which of the following is an essential element of employee empowerment?

A) allowing employees to participate in decision making

B) ensuring employees understand the information they are generating

C) ensuring employees understand the information they are using

D) All of the above.

Difficulty: 1

1. __________ occur(s) when a superior simply tells subordinates what their budget will be.

A) Authoritative budgeting

B) Stretch targets

C) Consultative budgeting

D) Budget slack

Difficulty: 1

1. ___________ mean(s) that the organization will attempt to reach much higher goals with the current budget.

A) Authoritative budgeting

B) Stretch targets

C) Consultative budgeting

D) Budget slack

Difficulty: 1

1. ____________ occur(s) when managers ask subordinates to discuss their ideas about the budget, but no joint decision-making occurs.

A) Authoritative budgeting

B) Stretch targets

C) Consultative budgeting

D) Budget slack

Difficulty: 1

1. ____________ involve(s) a joint decision-making process in which all parties agree about setting the budget targets.

A) The pseudo-participation

B) Budgeting games

C) Budget slack

D) The participation method

Difficulty: 1

1. ____________ occur(s) when subordinates ask for excess resources above and beyond what they need to accomplish budget objectives.

A) Pseudo participation

B) Effective budgeting

C) Budget slack

D) Participative budgeting

Difficulty: 1

1. The best description of participative budgeting is that:

A) lower-level managers and employees initially prepare the budget.

B) managers and employees at many levels are involved with the budgeting process.

C) the budget is prepared by the top managers.

D) top management sets figures for all operating activities and these amounts are not negotiable.

Difficulty: 1

1. Goal congruence in an organization refers to:

A) ensuring that appropriate disciplinary actions can be taken against unethical acts.

B) alignment of employee and organizational objectives.

C) so that essential tasks get accomplished.

D) ensuring that the organization's ethical code of conduct is enforced.

Difficulty: 1

1. Empowering employees in management accounting and control system design requires all of the following except:

A) allowing employees to participate in decision making.

B) having highly-motivated employees in every position.

C) ensuring that employees understand the information they are using and generating.

D) enabling employees' comprehension of performance measure computations.

Difficulty: 2

1. The dimensions of motivation that are important in designing jobs and specific task include all of the following except:

A) persistence.

B) control.

C) direction.

D) intensity.

Difficulty: 1

1. The key attribute of intrinsic rewards for compensation is that they:

A) have a well-defined monetary value.

B) are provided by one person to another.

C) are common across individuals in a given situation.

D) come from inside the individual.

Difficulty: 1

1. All of the following are examples of extrinsic rewards for compensation except:

A) job satisfaction.

B) stock options.

C) a cash bonus.

D) recognition in the company newsletter.

Difficulty: 1

1. Extrinsic rewards for compensation:

A) are always motivating.

B) are from another person and reinforce distinguished behavior.

C) result from a feeling of job satisfaction.

D) are always financial.

Difficulty: 1

1. Intrinsic rewards for compensation:

A) are generally overused.

B) are most effective when they are financial rewards.

C) may have motivational effects greater than extrinsic rewards.

D) require extensive use of management accounting information.

Difficulty: 2

1. ___________ refers to the amount of effort the employee expends on a job or specific task.

A) Direction

B) Persistence

C) Duration

D) Intensity

Difficulty: 2

1. __________ refers to the amount of time that an employee will stay with a job or specific task.

A) Persistence

B) Intensity

C) Duration

D) Motivation

Difficulty: 2

1. The performance measurement system for employees' compensation should focus on all facets of performance to:

A) ensure that reporting is complete.

B) encourage gaming of the performance indicator.

C) provide the highest possible level of internal control.

D) ensure that employees do not sacrifice performance on unmeasured elements.

Difficulty: 1

1. Group performance should be rewarded with compensation:

A) when an individual's work must be coordinated with others.

B) when employees must coordinate their decision making and other activities with other employees.

C) in addition to individual performance when working in teams.

D) never.

Difficulty: 2

1. Incentive compensation is most suited to:

A) all centralized organizations.

B) centralized organizations where the employees are skilled and empowered.

C) all decentralized organizations.

D) decentralized organizations where the employees are skilled and empowered to react to conditions and make decisions.

Difficulty: 2

1. A control system in which organizational participants focus on data coming out of the system and ways to deal with it is known as a(n):

A) employee self-control system.

B) diagnostic control system.

C) task and results control system.

D) interactive control system.

Difficulty: 2

1. Input-based compensation:

A) is considered superior to output-based compensation.

B) requires employees' understanding of company objectives.

C) bases compensation on employees' training and job qualifications.

D) is generally affected by factors beyond employees' control.

Difficulty: 1

1. Knowledge-based pay for employees is a form of:

A) input-based reward.

B) output-based reward.

C) outcome-based reward.

D) None of the above are correct.

Difficulty: 2

1. Surveys regarding compensation plans in practice suggest that:

A) incentive compensation systems are generally extremely efficient.

B) people believe that incentive compensation plans in the U.S. are increasingly unfair.

C) increased top management incentives generally correlate with greater shareholder wealth.

D) senior executives are paid mediocre salaries for superior performance.

Difficulty: 1

1. The most common incentive compensation plans include all of the following except:

A) extrinsic rewards.

B) stock options.

C) profit sharing.

D) employee stock ownership plans.

Difficulty: 1

1. In compensation plans, a cash bonus:

A) is based on individual or group performance.

B) does not affect long-term pay.

C) is usually triggered when performance exceeds a target.

D) All of the above are correct.

Difficulty: 1

1. In compensation plans, profit sharing:

A) is a group incentive compensation plan.

B) is focused on projected long-term performance.

C) must distribute an equal share of the profits to each employee.

D) All of the above are correct.

Difficulty: 2

1. In compensation plans, gain sharing:

A) treats employees as owners and all receive corporate dividends.

B) applies to a group of employees within an organization.

C) is generally based on individual performance.

D) provides feedback on an annual basis.

Difficulty: 1

1. ____________ is a form of earnings management in which expense recognition may be deferred to a future period with the goal of increasing net income in the current period.

A) Gain sharing

B) Smoothing

C) Data falsification

D) Gaming

Difficulty: 1

1. Stock-related incentive compensation plans include all of the following except:

A) stock options.

B) stock appreciation rights.

C) participation units.

D) merit pay.

Difficulty: 1

1. In compensation plans, a stock option is:

A) categorized as a long-term motivational device.

B) usually reserved for employees who affect long-term results.

C) most effective when the exercise price is more than the market price of the stock at issuance.

D) All the above are correct.

Difficulty: 2

1. All of the following are criticisms of stock options used in compensation plans except:

A) organizations have been too generous in rewarding stock options.

B) stock options rely on internal measures.

C) stock option's value may reflect many factors beyond the employee's control.

D) the option's price is often too close to the market price at issuance.

Difficulty: 2

1. The base ratio is:

A) 0.09.

B) 0.10.

C) 0.105.

D) None of the above are correct.

Difficulty: 2

1. The labor savings for Quarter 1 are:

A) ($2,000).

B) ($1,000).

C) $1,000.

D) $2,000.

Difficulty: 2

1. The bonus pool at the end of the year totals:

A) ($4,000).

B) -0-.

C) $4,000.

D) None of the above are correct.

Difficulty: 2

1. How does the human resource model of motivation differ from the scientific management school?

Difficulty: 1

1. Should management implement a new management accounting and control system without consulting employees? Why or why not?

Difficulty: 2

1. What assumptions does the human resource model of motivation make about employees? Why is it important for management to understand these assumptions?

Difficulty: 2

1. The two most common types of control are task control and results control. Define and then explain when each is appropriate to use.

Difficulty: 1

1. Explain why it is important to integrate the organizational code of ethics into the management accounting and control system.

Difficulty: 2

1. Describe some of the drawbacks of using the operating budget as a control device.

Difficulty: 1

1. What is stretch budgeting? Why is it used?

Difficulty: 2

1. What is budget slack? What are the pros and cons of building slack into the budget from the point of view of (a) an employee and (b) a senior manager?

Difficulty: 3

1. Foster Health Equipment makes devices and equipment that it sells to hospitals. The organization has a profit-sharing plan that is worded as follows:

The company will make available a profit-sharing pool that will be the lower of the following two items:

1. 40% of income before taxes in excess of the target profit level, which is 18% of net assets, or

2. $14 million.

The individual employee is paid a share of the profit-sharing pool equal to the ratio of that employee's salary to the total salary paid to all employees.

Required

a. If the company earned $90 million of earnings before taxes and had net assets of $200 million, what would be the amount available for distribution from the profit-sharing pool?

b. Suppose that Tracy Foster's salary was $136,000 and that total salaries paid in the company were $50 million. What would Tracy's profit share be?

Difficulty: 3

1. Kleen Company manufactures consumer products such as cleansers, air fresheners, and detergents. During a recent quarter, the value of the products made was $100 million, and the labor costs were $6 million. The company has decided to use a Scanlon plan with this quarter being used to establish the base ratio for the plan. The formula is to be applied quarterly with differences, positive or negative, added to the bonus pool. The pool is to be distributed on a 35%/65% basis between the employees and the company at the end of the fourth quarter.

The following production and cost levels were recorded during the first year of the plan's operation:

Required:

How much would be distributed to the employees at the end of the year?