Allocating capital funds and post-implementation audit You are the general LO 8 manager of a consumer products company. One of your major tasks is to ap¬ prove new product proposals brought to you by the product managers who re¬ port to you. The product managers are primarily an aggressive lot who are eager to expand the product lines they supervise. These product managers are paid a wage, which is based in part on the number of products that they supervise. In addition, they receive a bonus that is based on product sales. Each year you re¬ ceive between 20 and 25 new product proposals.

Each year the Appropriations Committee gives you a fund that you use to fund new product introductions. This fund is usually in the range of $60 million.

On average each new product introduction costs about $10 million. Therefore, you can fund between five and six new product introductions each year.

REQUIRED

(a) What effect do you think post-implementation audits, which compare man¬ agerial claims made during new product proposals with actual results, would have on new product proposals?

(b) Do you think that managers would have to be penalized for variances be¬ tween planned and actual results for the post-implementation audit to have any behavioral effect? If so, how should the company structure the penalty?
If not, why would penalties not be necessary?

(c) Do you think that the way managers are paid is appropriate? If so, why? If not, what changes would you suggest?(LO 1)