25 Jul WHAT DECISION MAKING ABILITY SHOULD THE WORKER HAVE IN ORDER TO MAXIMIZE THE EFFECTIVENESS OF THE INCENTIVE PLANS?
s pay on an automobile assembly line is based on the number of cars in a Show more Question 1 Part of a workers pay on an automobile assembly line is based on the number of cars in a pay period that come off the workers line and pass inspection. The remaining portion of the workers pay is an hourly wage that is fixed and only depends on the number of hours the employee works. How does this incentive plan align the employees incentives with the firms? Is the inspection necessary? What would you recommend to management if they asked you if they should inspect each individual employees work and pay based on the individuals work rather than whether the car passed the final inspection (that is what are the benefits and costs of paying for instance the windshield installer for the number of correctly installed windshields). What decision making ability should the worker have in order to maximize the effectiveness of the incentive plans? Question 2 A large electronics company is organized into mainly profit-center divisions. The components division and the consumer electronics division are profit-center divisions of the company. The components division produces individual chips and other electronic components. The components division supplies outside vendors in addition to the consumer electronics division. The consumer electronics division assembles components into devices sold to consumers. Recently there has been a dispute between the two divisions over a particular chip used in the production of a smart phone. The consumer electronics division argues that they are being overcharged because the transfer price they are being charged is significantly higher than the marginal cost of producing the chip. The transfer price includes a charge to recover fixed overhead costs as well as a mark-up to provide a profit margin for the components division. The components division argues that they need to charge a price commensurate with all their costs and that allows them to earn a reasonable profit for their output. Compounding the issue the particular chip under dispute is available from other vendors at a price less than the transfer price but higher than the marginal cost of production. You have been hired to suggest a solution to this problem. What would you recommend the electronics company do? Show less
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