Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 32

Incentives and Sales Forecasts: Ethical Issues

The controller of Northwest Hardware has just received two forecasts for sales in the Montana District for the coming year. Based on an econometric analysis of consumer spending and economic trends, a marketing research firm estimates sales of $1 million for next year. Lloyd Sutter, the district sales manager, estimates sales of $900,000. The controller seeks your advice on the estimate that should be used in developing next year’s budget.

Required

a. What are two possible explanations for the difference between the marketing firm’s estimate and Lloyd’ s?

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b. Suppose that instead of $900,000, Lloyd estimates $1.1 million in sales. What are two possible explanations for the difference between the marketing firm’s estimate and Lloyd’s?

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c. Do any of these explanations suggest unethical behavior by Lloyd?

Step 1 of 5

Incentives:

Incentives are defined as anything that motivates a person to perform some work or an action. They are provided by an organization to encourage the people to participate.

Incentives improve the response rate of participants. Incentives help a participant to overcome hesitation or time commitment of being involved in research. Incentives improve the quality of information received from participant which helps in improving research programmed.