David works for Wool garments company as a production manager. He often participates in the annual budgeting process of the company. David is requested by the Chief Executive Officer Linda to submit his department’s budgeted production for the following year. Linda reviews and typically adds 10 percent to the production budget provide by David. The new amount becomes David’s target production level for the following year. David can receive a cash bonus if his department exceeds the projected production level. Explain any incentive that David might have to be dishonest with Linda about the production level he thinks the department can achieve.

David works for Wool garments company as a production manager. He often participates in the annual budgeting process of the company. David is requested by the Chief Executive Officer Linda to submit his department’s budgeted production for the following year. Linda reviews and typically adds 10 percent to the production budget provide by David. The new amount becomes David’s target production level for the following year. David can receive a cash bonus if his department exceeds the projected production level. Explain any incentive that David might have to be dishonest with Linda about the production level he thinks the department can achieve.

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 35P

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