Manoil Electronics manufactures and sells electroniccomponents to electronics stores. The controller is preparingher annual budget and has asked the sales group to prepare salesestimates. All members of the sales force have been asked toestimate sales in their territory for each of the organization's 10major products. The marketing group is paid a salary anda commission based on sales in excess of some target level. You have discovered that the sales manager uses the sales estimatesto develop the target levels at which commissions begin. Specifically, the sales manager takes the sales estimate, adds 10%and the result becomes the sales hurdle level. If sales areless than the hurdle level, no commissions are paid. If salesare above the hurdle level, commissions are paid at varyingrates.

a. What is the motivation of the sales force if theyknow the relationship between their estimate and the target levelof sales?

b. What is the likely consequence of basing theorganiztion's budgets on these estimates?

c. If you were the controller in this situation and wereresponsible for both the reward system and the budgeting system,what would you do?