Accounting and Ethical Behavior The Santos Company pays its sales representatives a commission on each sale. The rate of commission is in accordance with the following schedule:

Sales representatives occasionally reach the $5 million sales level. Until this year, no one has ever reached the $10 million level. Barbara Barnes is about to close a $2 million deal that would increase her sales total for the year to just over $10 million. Not only will it be the biggest order she has ever taken, she will get a commission of 4 percent ($80,000) on the $2 million sale. Also, even more significantly, all her commissions for the year will be paid at the 4 percent level, an increase of $160,000 in commissions on her prior sales [$8,000,000 x (.04 — .02)].
There is just one small problem. Barbara is not sure the customer wants all $2 million of the order, and she is not sure it will be able to pay for the order if its business does not increase. She knows that the customer would much rather contract for a sale of only $1 million. But, on the other hand, it might really need all $2 million, and the extra $160,000 of commission would get Barbara the house she would like to buy. Santos has a fairly liberal return policy, and her customer could just return some of the merchandise next year if it bought too much. Maybe if it returned just a little each month, that wouldn’t look too bad. Also, Santos’s credit manager relies a lot on the sales representatives when granting credit, and if Barbara says the customer is acceptable, the credit will probably be granted. The company also wants the sales revenue. What should Barbara do? What should Santos do?

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Sales Level $1 to $1,000,000 to $5,000,000 to $10,000,000 Commission Rates 1% on all sales 1.5% on all sales 2% on all sales over $10,000,000 4% on all sales Maximum Commission $ 10,000 75,000 200,000 None, minimum 400,000