Skipper Enterprises (Manipulated Revenues)

You are the management accountant for Skipper Enterprises, a manufacturer of screen doors. Recently, one of the commissioned salespersons (your close personal friend) confided in you that a problem with the budgets is hurting the company’s profitability.

Your friend explained that salespersons are paid a straight commission of $15 for every screen door they sell. If a salesperson meets the budgeted sales of 3,000 screen doors per year, he or she is paid an annual bonus of $5,000. Your friend stated that it is actually quite easy to reach budgeted sales of 3,000 doors by October or early November. Because there is no financial incentive to sell additional doors once the 3,000 sales level is met and the

$5,000 bonus is earned, salespersons only “line up” sales for next year during the last couple of months of each year. In other words, instead of selling additional doors during November and December, they commit customers to buy during January of next year. This way, the doors count as next year’s sales, ensuring that the commissioned salespersons are well on their way to meeting the sales budget for next year.

You realize the current bonus plan is causing two problems. First, valuable sales are being deferred each year because there is less incentive to sell near the end of the year.

Second, customers are receiving less than optimum service because it can take as long as two months for customers to get their desired doors.

You don’t know what to do with your new information.

1. Should you inform management that the sales plan is hurting company profits, or should you keep the information confidential as your friend requested?

2. If it becomes known that you had this information and didn’t come forward, you could lose your job. On the other hand, you hate to lose a good friend. What should you do?