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Module 6: Assignment #6 – Chapter 10
E10-32: Consider a company that sells prescription drugs. It has salespeople who visit doctors
and hospitals to encourage physicians to prescribe its drugs. The company sells to drugstores.
Salespeople are evaluated based on the sales in their territories. For each, income is a salary plus
a bonus if actual sales exceed planned sales. To plan operations, this company needs to develop
estimates of total sales. Where should it get this information?
If the organization solicits the information from the sales force, salespeople will be motivated to
understate sales potential in order to set low hurdles for commissionable sales. Two other
approaches include using estimates based on market surveys conducted by a drug industry
association or other research group, and using statistical models to identify a relationship
between future sales and current sales or trends in disease.
E10-33: Some people say that budgets are great for planning but not for control. What do you
think they mean? Do you agree with this sentiment? Explain.
The primary purpose of budgets is for planning, whereas problems are created when budgets are
used after the fact for control. For example, people whose performance will be compared to the
budget targets may understate their potential in order to have achievable targets set.
