Cameron Bly is a sales manager for an automobile dealership. He earns a bonus every year based on revenue from number of autos sold in year less related warranty expenses. Actual warranty expenses have varied over the prior 10 years from a low of 3 percent of an automobile's selling price to a high of 10 percent. In the past, Bly has tended to approximation warranty expenses on high end to be conservative. He must work with dealership's accountant at year-end to turn up at warranty expense accrual for cars sold each year.
Required
1. Does warranty accrual decision create any ethical dilemma for Bly?
2. Since warranty expenses vary, what % do you think Bly could select for the current year? Justify your response.