Question

The controller of Northwest Hardware has just received two forecasts for sales in the Montana District for the coming year. Based on an econometric analysis of consumer spending and economic trends, a marketing research firm estimates sales of $1 million for next year. Lloyd Sutter, the district sales manager, estimates sales of $900,000. The controller seeks your advice on the estimate that should be used in developing next year's budget.

A. What are two possible explanations for the difference between the marketing firm's estimate and Lloyd's?

B. Suppose that instead of $900,000, Lloyd estimates $1.1 million in sales. What are two possible explanations for the difference between the marketing firm's estimate and Lloyd's?

C. Do any of these explanations suggest unethical behavior by Lloyd?

Answer 1

a. Given the fact that Lloyd is a district sales manager he might have more knowledge than the marketing agency which may have a myopic view of the selling conditions. Hence will be in a better position to estimate the sales. Another view is that the Lloyd wants to play a safe game and reach his targets in case his financial incentives are based on achievement of sales target.

b. One explanation same as (a), Given the fact that Lloyd is a district sales manager he might have more knowledge than the marketing agency which may have a myopic view of the selling conditions. Another explanation is that Lloyd might want additional man power to sell the product in the district and believes that having higher forecast might fetch him extra employees.

c. Lloyds ethics cannot be really questioned with just the given information. We do not know what his motives are in order to jump to a conclusion about his behavior. He may overcast sales in order to safeguard his position in case he does not achieve the target may be unethical. However, if he undercasts sales just to have his target met, it may be unethical.