As Part of the Company's Compensation Plan,a Chief Executive Officer

question 24

Multiple Choice

As part of the company's compensation plan,a chief executive officer (CEO) is paid 1% of net profit if net profit exceeds $20 00 000 but no more than $40 000 in a given year.It is estimated that net profit for the year will exceed $45 00 000.Under PAT the CEO will likely adopt which accounting policy

• A) decrease reported profit as much as he can
• B) decrease reported profit to $20 00 000
• C) increase reported profit as much as he can
• D) increase reported profit up to $40 00 000

---

Definitions:

Target Profit

The desired level of profit that a business plans to achieve within a specific period.

Contribution Format

A format for income statements where all variable expenses are subtracted from sales to calculate contribution margin, which then has fixed expenses subtracted to determine net operating income.

Income Statement

A financial report that shows a company's financial performance over a specific period, including revenues, expenses, and profit or loss.

Contribution Margin Ratio

The percentage of sales revenue that exceeds variable costs, indicating how much of each sales dollar is available to cover fixed costs and generate profit.