Denise Bunch is the sales manager for a tractor supply company. She earns an ann

Question

Denise Bunch is the sales manager for a tractor supply company.  She earns an annual bonus based on sales minus related warranty expenses.  Actual warranty expenses have varied over the past 15 years from a low of 2% of sales to a high of 10%.  In the past, Bunch has recommended an estimate on the high side of the range in order to be conservative.  

1. Does the warranty accrual recommendation create an ethical dilemma for Bunch?  If so, explain why.

2. What percent would you recommend if you were Bunch.  (Justify your answer)

Explanation / Answer

1) Yes, the current reccomendation shall create ethical dilemma. The sales manager is a human and it is very common to have a permisible limit of warranty expenses for the company. Fixing sales commission by reducing the warranty expenses as an estimate on higher side may not be fair.

2) It is reccomended that the company considers taking an average warranty of the last couple of years which works out to be 6% which would be a fair eatimate to reduce from the %of sales and determining sales commission. Long run average shall give better results, thus considering all the past 15 years shall be better.

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