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Cornerstones of Managerial Accounting 4th Edition by Maryanne Mowen, Don Hansen, Dan Heitger
Edition 4ISBN: 978-0324380767Cornerstones of Managerial Accounting 4th Edition by Maryanne Mowen, Don Hansen, Dan Heitger
Edition 4ISBN: 978-0324380767 Exercise 2
Ethical Behavior
Manager: If I can reduce my costs by $40,000 during this last quarter, my division will show a profit that is 10% above the planned level, and I will receive a $10,000 bonus. However, given the projections for the fourth quarter, it does not look promising. I really need that $10,000. I know of one way that I can qualify. All I have to do is lay off my three most expensive salespeople. After all, most of the orders are in for the fourth quarter, and I can always hire new sales personnel at the beginning of the next year.
Required:
CONCEPTUAL CONNECTION What is the right choice for the manager to make Why did the ethical dilemma arise Is there any way to redesign the accounting reporting system to discourage the type of behavior that the manager is contemplating
Manager: If I can reduce my costs by $40,000 during this last quarter, my division will show a profit that is 10% above the planned level, and I will receive a $10,000 bonus. However, given the projections for the fourth quarter, it does not look promising. I really need that $10,000. I know of one way that I can qualify. All I have to do is lay off my three most expensive salespeople. After all, most of the orders are in for the fourth quarter, and I can always hire new sales personnel at the beginning of the next year.
Required:
CONCEPTUAL CONNECTION What is the right choice for the manager to make Why did the ethical dilemma arise Is there any way to redesign the accounting reporting system to discourage the type of behavior that the manager is contemplating
Explanation
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The right choice would be to check other possibilities to reduce the cost of production or to increase the volume of sales. The manager should not lay off his sales person for his own benefit. Ethical behavior is where the employee thinks about the group and not about self interest. Here the manager is thinking about his self interest. If he plans properly and motivates his subordinates with the benefits of increased sales, they all can work in the same line by reducing waste, reducing cost, reducing production time and increasing the sales. The manager can also increase features in the product thereby increasing the price of the product in the market which can increase the sales. These all will help the manager to achieve the target without being unethical towards the salesperson.
The ethical dilemma arises because in an organization one should think about the benefit and welfare of the whole group and society at large and should not give more value to self interest.
But here the manager wants to get the bonus which is his self interest. For his self interest he is ready to lay off three sales-people which would reduce his costs, which is not ethical.
If the sales people's salary is not included in the cost of production but shown as different head under the selling expenses, and the manager is asked to reduce the cost of good produced, then the manager could not have thought of this option but have actually tried harder in reducing wastage in the production and thereby reducing the cost.
The ethical dilemma arises because in an organization one should think about the benefit and welfare of the whole group and society at large and should not give more value to self interest.
But here the manager wants to get the bonus which is his self interest. For his self interest he is ready to lay off three sales-people which would reduce his costs, which is not ethical.
If the sales people's salary is not included in the cost of production but shown as different head under the selling expenses, and the manager is asked to reduce the cost of good produced, then the manager could not have thought of this option but have actually tried harder in reducing wastage in the production and thereby reducing the cost.
Cornerstones of Managerial Accounting 4th Edition by Maryanne Mowen, Don Hansen, Dan Heitger
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