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