Question 1

Jose Groves is the manager of the Repairs and Maintenance Department of Groves Industries. He is responsible for preparing his department's 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 department's 20x8 budget to the company's 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.

1. What do you think are the real reasons for the increase in the budgeted amounts?
2. What ethical considerations enter into this situation?