Achieve budget targets focusing on pretax profit as a

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achieve budget targets, focusing on pretax profit as a percent of billable cost for each project completed. Identify three advantages and three disadvantages of a performance measurement and incentive compensation system linked to the budget for a firm such as Madison. 3. Two weeks after submitting his bid, Burns received a call from Colby stating that if Madison could meet the lowest fixed cost bid of $695,000, then it would be awarded the contract. Identify the factors that Burns should consider in deciding whether to accept the fixed price of $695,000. 4. If Burns decides to accept the contract for the fixed price of $695,000, identify two reasons that Burns can use to justify his decision. Explain your answer. Question 2.19 – GRQ Company GRQ Company is a privately-held entity that refines a variety of natural raw materials used as primary inputs for the steel industry. The firm has done well over the last several years and most members of senior management have received bonuses well in excess of 60% of their base salaries. Also, both the CFO and the CEO have earned bonuses in excess of 100% of their base salaries. GRQ has projected this trend of successful earnings and bonuses to continue. All-American Steel Company (AAS) has tendered a very generous offer to acquire GRQ. At the same time, several top GRQ executives who own over 40% of GRQ’s stock, have learned that the primary supplier of their major raw material will not renew their contract at the end of the current fiscal year. GRQ has no other vendors available within the United States to competitively provide this raw material in the magnitude needed to support their continued record of profitable operations. As part of the due diligence process, an analyst with AAS has asked John Spencer, controller of GRQ, if he knows of any material event that would impact earnings over the next several years. Spencer, who also participates in the bonus program, is aware that GRQ’s primary supplier will no longer provide raw materials to the firm beyond the end of the current fiscal year. He spoke with Bob Green, the CFO of GRQ, telling him that while the profit projections for the remainder of the current year will match the earnings of prior years, it is obvious that projected earnings for the next year will be greatly reduced. Green informed Spencer that the executive committee had met and decided that only members of top management were to be made aware of the situation with their key supplier. Accordingly, Spencer should not inform AAS of the situation with the supplier. REQUIRED: 1. Referring to the specific standards outlined in IMA’s Statement of Ethical Professional Practice, identify and discuss Spencer’s ethical obligations. 2. According to IMA’s Statement of Ethical Professional Practice, identify the steps that Spencer should take to resolve the dilemma.
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364 Question 2.20 – CenturySound CenturySound, Inc. produces cutting edge high-end audio systems that are sold primarily through major retailers.
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