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 $2,100,000

The total​ profit-sharing pool​ for:

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

1. ​First-dollar of profits is $

2. ​Graduated​ first-dollar of profits is $

3. Profitability threshold formula is $

Answer 1

The total​ profit-sharing pool​ for:

a) ​First-dollar of profits is

3.0 percent of all profits up to​ $12 million = $360,000

b) Graduated​ first-dollar of profits is

2.0 percent of all profits up to​ $15 million, and 4.0 percent of all profits up to​ $40 million, hence

Graduated​ first-dollar of profits = 4% of 35 million(4% of profits till $40 million)

Graduated​ first-dollar of profits = $1,400,000

c) Profitability threshold formula is

1.5 percent of the profits above​ $10 million up to​ $17 million. = 1.5% of 17 million

1.5 percent of the profits above​ $10 million up to​ $17 million. = $255,000

If you have any doubts please let me know. An upvote will be appreciated.