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

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

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 $$11,000.$ Thus, Utah's revenue budget for $6103$ s is $$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 $).$ 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.