Budgeting
Salespeople at a particular firm forecast what they expect to sell next period. Their supervisors then
review the forecasts and make revisions. These forecasts are used to set production and purchasing
plans. In addition, salespeople receive a fixed bonus of 20 percent of their salary if they meet or
exceed their forecasts.
Discuss the incentives of the salespeople to forecast next-period sales accurately. Discuss the
trade-off between using the budget for decision making versus using it as a control device.
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