Refer to Scenario 2 for quiz question 10. If the financial incentives of your gym directors were directly tied to net profit of their gym, what would be some of the ways they could artificially bump up their number at the end of the financial year, especially if they think they are not going to be around the following year anyway?

(A) They could ask customers to pre-pay membership fees that actually apply to the following year for a discount

(B) They could indefinitely postpone replacing old equipment and gym upgrade investments

(C) They could artificially sign up members towards the end of the year and have them pre-pay membership fees, with a promise of cancelling their memberships and refunding their fees as soon as the new financial year starts

(D) All of the above

Explanation

All the above mentioned ways could be used to artificially bump up their net profit number at the end of the financial year. They could ask their customers to pay the membership fees in advance for the next year and provide a discount for the same.

Net profit can be increased by decreasing the costs of replacing old equipment and buying new equipment.

Another way of bumping up net profit is by signing up members artificially towards the end of the year and having them pay the membership fees in advance with a promise of canceling their memberships and refunding the previous fees as soon as the new financial year begins.

Conclusion

This question is a part of the Weekly Quiz 4 section from the Organisational design: Know your organisation course. You can check out all the quiz answers to this exam in our Organisational design: Know your organisation Quiz Answers page.