Question

In your new role as compensation​ analyst, you have been asked to estimate the dollar amount of the​ profit-sharing pool based on three approaches as well as the allocation of​ profit-sharing awards to eligible employees. The​ company's profits equal​ $35 million. You are considering the following three formulas for determining the total​ profit-sharing pool.

​First-Dollar of Profits​: The company agrees to share 3.0 percent of all profits up to​ $12 million.

Graduated First-Dollar-of-Profits​: The company agrees to share 2.0 percent of all profits up to​ $15 million, and 4.0 percent of all profits up to​ $40 million.

Profitability Threshold Formula​: The company will share 1.5 percent of the profits above​ $10 million up to $17 million.

There are 260 employees whose total annual base pay equals $2,100,00

The total​ profit-sharing pool​ for:

​(Round your answers to the nearest hundredths​ place.)

​(a) First-dollar of profits is

​$360,000360,000

​(b) Graduated​ first-dollar of profits is

​$1,400,0001,400,000

​(c) Profitability threshold formula is

​$255,000255,000

Based on the equal payments​ formula, the average​ profit-sharing award per employee​ (based on the total​ profit-sharing pools)​ for:

​(Round your answers to the nearest hundredths​ place.)

​(a) First-dollar of profits is

​$1384.62 per employee

​(b) Graduated​ first-dollar-of-profits is

​$5384.62 per employee

​(c) Profitability threshold formula is

​$980.77 per employee

(a) For​ First-Dollar of Profits Profit Sharing​ Pool, the annual​ profit-sharing awards based on proportional payments​ for:

​(Round your answers to the nearest hundredths​ place.)

​Jim, whose annual base pay equals​ $55,000 = $blank

​Margaret, whose annual base pay is​ $125,000 = $blank

​Ella, whose annual base pay is​ $210,000 = $nothing

​(b) For Graduated First Dollar of Profits Profit Sharing​ Pool, the annual​ profit-sharing awards based on proportional payments​ for:

​(Round your answers to the nearest hundredths​ place.)

​Jim, whose annual base pay equals​ $55,000 = $blank

​Margaret, whose annual base pay is​ $125,000 = $blank

​Ella, whose annual base pay is​ $210,000 = $blank

​(c) For Profitability Threshold Formula​ Pool, the annual​ profit-sharing awards based on proportional payments​ for:

​(Round your answers to the nearest hundredths​ place.)

​Jim, whose annual base pay equals​ $55,000 = $blank

​Margaret, whose annual base pay is​ $125,000 = $blank

​Ella, whose annual base pay is​ $210,000 = $blank

Answer 1

• Annual​ profit-sharing awards based on proportional payments:
• (a) For​ First-Dollar of Profits Profit Sharing​ Pool

  • Employee Name	Annual Base Pay	Proportion to Total Employees Compensation (Employees Annual Pay/ $2,100,000)X100	Share of Profit from Pool ($360,000 X Employees Proportion)
    Jim	$55,000	2.619%	$9,428.4 = $9400
    Margaret	$125,000	5.952%	$21,427.2 = $21,400
    Ella	$210,000	NA - As given in Question	Nothing

• b)For Graduated First Dollar of Profits Profit Sharing​ Pool

  • Employee Name	Annual Base Pay	Proportion to Total Employees Compensation (Employees Annual Pay/ $2,100,000)X100	Share of Profit from Pool ($1,400,000 X Employees Proportion)
    Jim	$55,000	2.619%	$36,666 = $36,700
    Margaret	$125,000	5.952%	$83,328 = $83,300
    Ella	$210,000	10%	$140,000

• c)For Profitability Threshold Formula​ Pool

  • Employee Name	Annual Base Pay	Proportion to Total Employees Compensation (Employees Annual Pay/ $2,100,000)X100	Share of Profit from Pool ($255,000 X Employees Proportion)
    Jim	$55,000	2.619%	$6,678.45 = $6,700
    Margaret	$125,000	5.952%	$15,177.60 = $15,200
    Ella	$210,000	10%	$25,500

Note: Answers are rounded to the nearest hundredths place.