Problem
Skipton Led has had difficulty in controlling its maintenance expense in recent years, with actual expenditures exceeding what was budgeted. This year the chief executive officer and the maintenance manager carefully prepared a budget for the coming year and agreed on an incentive plan to help control maintenance expenditures. The maintenance budget was set at $120,000 and it was agreed that the maintenance manager would get a salary bonus of $1,000 for every $5,000 of favorable variance (that is, a salary bonus of $1,000 fo every $5,000 by which actual expenditure was less than the budgeted amount of $120,000).
What undesirable consequences might result from this arrangement?