P $6-10$: Potter$-$Bowen

Potter$-$Bowen $($PB$)$ manufactures and sells postage meters throughout the world. Postage meters print the

necessary postage on envelopes, eliminating the need to affix stamps. The meter keeps track of the

postage, the user takes the meter's counter to a post office and pays money, and the post office initializes

the meter to print postage totaling that amount. The firm offers about $30$ different postage systems,

ranging from small manual systems $($costing a few hundred dollars$)$ to large automated ones $($costing up

to $$75,000.$

PB is organized into Research and Development, Manufacturing, and Marketing. Marketing is further

subdivided into four sectors: North America, South America, Europe, and Asia. The North American

marketing sector has a sales force organized into $32$ regions with approximately $75$ to $200$ salespeople per

region.

The budgeting process begins with the chief financial officer $($CFO$)$ and the vice president of marketing

jointly projecting the total sales for the next year. Their staffs look at trends of the various PB models and

project total unit sales by model within each marketing sector. Price increases are forecast and dollar

sales per model are calculated. The North American sector is then given a target number of units and a

target revenue by model for the year. The manager of the North American sector, Helen Neumann, and

her staff then allocate the division's target units and target revenue by region.

The target unit sales for each model per region are derived by taking the region's historical percentage

sales for that machine times North America's target for that model. For example, model $6103$ has North

American target unit sales of $18,500$ for next year. The Utah region last year sold $4\mathrm{.}1$ percent of all model

$6103$s sold in North America. Therefore, Utah's target of $6103$ s for next year is $758$ units $(4\mathrm{.}1\%18,500).$

The average sales price of the $6103$ is set at $$11,000.$ Thus, Utah's revenue budget for $6103s$ is $$8,338,000.$

Given the total forecasted unit sales, average selling prices, and historical sales of each model in all

regions, each region is assigned a unit target and revenue budget by model. The region's total revenue

budget is the sum of the individual models' revenue targets.Each salesperson in the region is given a unit and revenue target by model using a similar procedure. If

Gary Lindenmeyer $($a salesperson in Utah$)$ sold $6$ percent of Utah's $6103$s last year, his unit sales target of

$6103$ s next year is $45$ units $(6\%758).$ His total revenue target for $6103$ s is $$495,000($or $45$$$11,000).$

Totaling all the models gives each salesperson's total revenue budget. Salespeople are paid a fixed salary

plus a bonus. The bonus is calculated based on the following table:

Required:

Critically evaluate PB$\text{'}$s sales budgeting system and sales force compensation system. Describe

any potential dysfunctional behaviors that PB$\text{'}$s systems are likely to generate.