Alicia Perez was controller of the vascular products division of a major medical instruments company. On December 30, 2012, Perez prepared a preliminary income statement and compared it with the 2012 budget:

The top managers of each division had a bonus plan that paid each a 10% bonus if operating income exceeded budgeted income by more than 20%. It was obvious to Perez that the vascular products division had easily exceeded the $180,000 of operating income needed for a bonus. In fact, she wondered if it would not be desirable to reduce operating income this year€”after all, the higher the income this year, the higher top management is likely to set the budget next year. Besides, if some of December€™s sales could just be held back and recorded in January, the division would have a running start on next year.
Perez had always been a team player, and she saw holding back sales as the best strategy for her team of managers. Therefore, she recorded only $1,500,000 of sales in 2012€”the other $100,000 was recorded as January 2013 sales. Operating income for 2012 then became $250,000 and there was a head start of $50,000 on 2013€™s operating income.
Comment on the ethical implications of Perez€™sdecision.

Transcribed Image Text:

Vascular Products Division Income Statement, for the Year Ended December 31, 2012$ in thousands) Budget $1,200 600 600 450 S 150 Preliminary Actual Sales revenue Cost of goods sold Gross margin Other operating expenses Operating income $1,600 800 800 500 $ 300