Michael Massy is the head of the sales department for a large novel distributor. he manages a team of five sales representatives, including his close friend, Charles Andrew. Each sales representative is responsible for particular product lines and is entitled to receive an annual salary bonus provided that he or she exceeds the profit forecast for his/her product group by more than 10 per cent. Profit for each product group is estimated by deducting from sales revenue the cost of the books sold, plus a charge for corporate overheads. Corporate overheads are allocated as a percentage of sales revenue, using a complex formula based on different percentages of revenue for different product lines; and sales representatives can never make any sense of their annual overhead charge.

As the year end approaches, Charles, who sells religious and philosophical texts, learns from the accountant, Lewis Gordan, that he will not receive a bonus, as he will not achieve his annual profit forecast. he is feeling very frustrated, as he has heard that the rest of the sales team will come in more than 20 per cent above their forecast.

Charles approaches Lewis suggesting that an accounting entry is made to move some of the overhead charges to the other sales representative, who, after all, will still earn their bonus. Lewis refuses on the grounds that he is a CPA, but he is subsequently instructed by Michael to make this journal entry.

Required

1. Explain how the bonus system is leading to unintended behavioural outcomes.

1. What relevance does lewis CPA status have to this situation?

1. How should Lewis respond to Michaels instruction to move overhead charges from Charles to the other sales representatives? Explain your answer.