Reference no: EM132641396

Question - Janet is the head of the sales Department for a large book distributor. She manages a team of sales people, including her close friend Emma. Each salesperson is responsible for particular product line and is entitled to receive a bonus provided that, he or she exceeds the profit forecast for his/her product group by more than 10 percent. Profit for each product group is estimated by deducting from sales revenue, the cost of books sold plus a charge for corporate overhead. Corporate overheads are charged as the percentage of sales revenue using a complex formula based on different percentages of revenue for different product lines: and salespeople can never make any sense of their annual overhead charge.

As the year end approaches Lyer, who sells religious and philosophical text learns from the accountant Stanley Riteous that she will not receive a bonus as she will not achieve her annual profit forecast. She's feeling very frustrated as she has heard that, the rest of the sales team will come with more than 20% above their forecast.

Lyer approaches Riteous suggesting that an accounting entry is made to move some of the overhead charges to the other salespeople who after all will still earn their bonus. Riteousrefuses on the ground that he is a CPA but he is subsequently instructed by Kaniva to makethis journal entry.

Required -

Explain how the bonus system is leading to unintended behaviour or comes.

What relevance does Riteous CPA status have to the situation?

How should Riteus respond to Kaniva's instruction to move over her charges from Lyerto the other sales people explain your answer?