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Chapter 11 Cameron Bly is a sales manager for an automobile dealership. He earns a bonus each...

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Accounting

Chapter 11

Cameron Bly is a sales manager for an automobile dealership. Heearns a bonus each year based on revenue from the number of autossold in the year less related warranty expenses. Actual warrantyexpenses have varied over the prior 10 years from a low of 3% of anautomobile's selling price to a high of 10%. In the past, Bly hastended to estimate warranty expenses on the high end to beconservative. He must work with the dealership's accountant atyear-end to arrive at the warranty expense accrual for cars soldeach year.

  1. Does the warranty accrual decision create any ethicaldilemma for Bly?
  2. Since warranty expenses vary, what percent do you thinkBly should choose for the current year? Justify yourresponse.

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