Warranty Accrual

1.Cameron Bly is a sales manager for an automobile dealership. He earns a bonus each year based on revenue from the number of autos sold in the year less related warranty expenses. Actual warranty expenses have varied over the prior 10 years from a low of 3% of an automobile’s selling price to a high of 10%. In the past, Bly has tended to estimate warranty expenses on the high end to be conservative. He must work with the dealership’s accountant at year-end to arrive at the warranty expense accrual for cars sold each year.  2.Does the warranty accrual decision create any ethical dilemma for Bly? Since warranty expenses vary, what percent do you think Bly should choose for the current year? Justify your response. 3.comment/ reply to my classmate response:  Chapter 11 – Rosa Cuellar by Rosa Cuellar – Thursday, January 7, 2021, 8:07 PM Number of replies: 0 1. The warranty decision does create an ethical dilemma for Bly. The ethical dilemma is that his bonus each year is directly based on revenue from the number of autos sold in the year less related warranty expenses. He is asked to work with the accountant at year-end to find the warranty expense accrual for cars sold each year. This creates an ethical dilemma because if he under estimates it, he gets a higher bonus; and if he gives a higher estimate, he gets a small bonus. He has estimated on the high end in the past which seems to be ethical, but the dilemma is still there. 2. Since warranty expenses vary, he should look at the past trends to create an estimate. Past trends can be used to forecast future warranty expenses. He could take the average rate of change in % of automobile’s selling price of the past years, and apply it to the last year to find an estimate.   NOTE: KEEP IT SHORT JUST LIKE MY CLASSMATE!! I DON’T NEED AN ESSAY!!!!!