CJ Corporation manufactures steel rebar for use in construction. The accounting staff is currently preparing next year’s budget. Bob Johnson is new to the firm and is interested in learning how this process occurs. He has lunch with the sales manager and the production manager to discuss further the planning process. Over the course of lunch, Bob discovers that the sales manager adjusts sales projections between a flexible amount and a static amount based on which will reflect the lowest variance from actual results. The production manager does the same for cost estimates.

Both managers’ year-end bonus is determined based on how low of a variance is achieved. When Bob asks about why they adjust their projections between flexible and static budgets, the response is simply that everyone around here does it.

Required

a. What do the sales and production managers hope to accomplish by their methods?

b. How might this backfire and work against them?

c. Are the actions of the sales and production managers unethical?