Essentials Of Cost Accounting

Answer:

Incentive Compensation
Incentive compensation refers to the proportion of the salary that an employee gets as a reward of his performance during the specific period, if an employee performs efficiently and out performs task than the company provides reward for the extra effort made by the employees.
Executive Incentive plans are used by small-business owners as a reward to their employees. It encourages employees to work efficiently. This benefit is in addition to the salary.
1. Employees of the organizations get motivated.
2. Employees put extra efforts to reach the targets as the bonus payments are target based.
3. Improves production capacity of the Organization.
4. Improves sales of the organization.
5. Improves attendance of the employees.
6. Reduces attrition of the Organization.
7. It creates happy work place for the employees.

Answer:

Responsibility Center
A responsibility center is a unit where managers are given responsibility and control over expenses, revenues and Investments. The unit has its own policies and procedures and financial reports.
We have responsibility center due to below reasons:
It enables middle level management to delegate responsibity to lower level management.
It compels individual manager to take right decisions. It forces management to delegate authority.
It encourages comparison between actual achievements and budget achievements.
It helps to do variance analysis and know the root cause analysis of the problem and take corrective action.
It increases ownership of the managers as they are answerable to the deviations.

Answer:

Bonus payments are payment system designed to enhance the performance of the employees. These are the rewards given to the employees for enhancing their efficiency by the organization. Bonus payments is also based on company performance.
Bonus arrangement can be classified into two categories: Individual merit: under this, performance of each individual is evaluated and bonuses are given according to their individual performance and the other system under which employees share in a bonus pool irrespective of their individual performance.
Company also uses other alternatives to bonus system to enhance the performance of their managers in order to achieve the desired targets. The alternatives to bonus system are as follows:
1.
Incentive plans : Incentive plans are extensively used to reward managers for doing what is in the best interest of the organization. It is a formal plan used to motivate or encourage specific behavior or actions of the managers to exceed the growth expectations of the organization.
Incentive plans are usually tied either to the value of profits or to the value of company's stocks.
2.
Profit sharing plans : It is an incentive plan introduced by organizations to provide employees a share in the company's profits based on its earnings. These plans are generally based on some target profits and if the set target is achieved or exceeded, a percentage of profits is distributed to the managers.
Example: A corporate health care organization is expected to make a profit of $3 million in a year and trustees decide that the executives' incentive pool is $150,000. So, by comparing the $150,000 with the $ 3 million would give 5% of profits. Thus, the organization establish the pool of 5% profits each year.
3.
Stock option plan : It is a stock option under which executives received the right to buy a certain number of shares in the company at a discounted price from the market price for a specified period of time.
Corporate health care organization have alternative options in developing incentive plans for their executives. They provide stock option plan, under which managers buy shares at specified prices as a part of their incentive compensation.
The managers will be benefitted when they buy the shares at a lower price and then sell at a higher price in the market.