Connor Bly is a sales manager for an automobile dealership. He earns a bonus eac

Question

Connor Bly is a sales manager for an automobile dealership. He earns a bonus each year based on revenue from the number of autos sold in the year less related warranty expenses. Actual warranty expense have varied over the prior 10 years from a low of 3% of an automobile's selling price to a high of 10%. In the past, Bly has tended to estimate warranty expenses on the high end to be conservative. He must work with the dealership's accountant at year-end to arrive at the warranty expense accrual for cars sold each year.

1. Does the warranty accrual decision create any ethical dilemma for Bly?
2. Since the warranty expenses vary, what percent do you think Bly should choose for the current year? Justify your response.

Explanation / Answer

Mr Bly should take care to attend to the complaints during the warranty period to save the reputation of the company. He is correct in arriving a reasonable amount even if it is conservative one. No dilemma, he is ethically correct. The Warranty estimate may be in between 3% - 10% say 6%

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