Jose Groves is the manager of the Repairs and Maintenance Department of Groves Industries. He is responsible for preparing his departments annual budget. Most managers in the company inflate their budget numbers by at least 10% because their bonuses depend on how much below budget their departments operate. Groves turned in the following information for his departments 20x8 budget to the companys budget committee:

Budget 20x7 Actual 20x7 Budget 20x8 $ $ $ Supplies 20,000 16,000 24,000 Labour 80,000 82,000 96,000 Utilities 8,500 8,000 10,200 Tools 12,500 9,000 15,000 Hand- carried equipment 25,000 16,400 30,000 Cleaning materials 4,600 4,200 5,520 Miscellaneous 2,000 2,100 2,400 Total 152,600 137,700 183,120

Because the figures for 20x8 are 20% above those in the 20x7 budget, the budget committee questioned them. Gonzales defended them by saying that he expects a significant increase in activity in his department in 20x8. What do you think are the real reasons for the increase in the budgeted amounts? What ethical considerations enter into this situation?