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33670731 Topic: Case study
This paper seeks to analyse and discuss three separate cases. The issues range from accounting issues, legal issues and ethical issues. Each is resolved under guide questions given per case facts.
2. Analysis and Discussion
2.1 Case 1.- Pickmore International
This case of Pickmore International requires answers to the following two questions to be answered: (1) What are the accounting and ethical issues involved in this case? (2) Should Joan recommend acceptance of the sales terms proposed for this special order?
The accounting issues involved in the case include whether the company could earn from transaction based on price desired.
While the ethical issue in the case is whether it is proper to do a business where the profits that would be earned in a transaction justifies the case facts that Pickmore International would pay a $5,000 “facilitating payment” to a friend of the customer” to get the product through customs more quickly.
Let us first dwell on the accounting issue. As to the profitability of accepting the order is premised on assumption that the special order in unit is still within the capacity of the plant to make or what is technically called as within the relevant range of cost.
When production is done under relevant range additional order will not entail additional cost except for incremental ‘facilitating’ payment of $5,000. Under said premise it is a winning proposition to accept the order since it will give to Pickmore International more profits. In 1000 units are order it would yield additional profit of $40 while if 2000 units are ordered, $5,140 would be earned by the company.
See Appendix A. It should be noted that any sales price above the variable cost, Pickmore will earn profits provided the order is within the relevant range.
The ethical issue involves as a condition of accepting the order the payment of $ 5,000 as facilitating payment. Pickmore International could treat the ethical issue two ways. First, it can treat the matter as unethical since it would seem as undermining its business since it was being made as a condition for the order. On the other hand it can treat the same as normal part of business and would just consider the facilitating payment as cost of doing business. Case facts also say that in considering the order, Ross (the boss) indicated to Joan that this is a very important customer and this work would help some employees earn a little extra Christmas money with overtime which makes it more interesting on whether Pickmore’ accepting the order is brought by such a deep need. This paper submits that the special order is still within ethical bounds provided the $5,000 is treated as cost and Pickmore or its representative will not be the one to make the payment directly to that ‘friend of that customer.’ By treating it’s as business cost, it was the customer who may be unethical in so conducting its business under the given facts. Business ethics varies from country to country since while some allows the practice giving facilitating payment some countries do not. Hence, the customer being ethical or not is relative.
As whether should Joan recommend acceptance of the sales terms proposed for this special order, this paper agrees to the recommendation as it could be shown the profits will be earned and provided the operation for the production of additional order is within the relevant range and provided further that Pickmore will not have a hand in directly paying the facilitating payment to the customer’s friend but Pickmore may just treat the $5,000 as sales discount and therefore considered as ordinary cost of doing business. Although there appears to be an ethical dilemma (Scott, 1998), the paper attempted resolve the same by setting conditions under which the transaction must be consummated.
2.2 Case 2 - Issues of Quality and time on C-V-P Decisions
The article that was found describing an organization’s effort to invest in automation or other technologies in order to reduce costs is entitled. The smart way to invest in computers by Sandi Smith, CPA. The quality and time issues are affected by the investment are as follows: (1) Buying computer need not be based solely on price as planning ahead could of help so to that machines will not have problems as to compatibility (2) There is a need to develop a long-term relationship with one vendor in own area of business that can provide the business you with technical support and then purchase your computers there so as to maintain a good plan for the technology. (3) Retaining a consultant to guide your organization if present staff lacks a technical support person would also be part of the plan. (4) Management should develop a standard computer configuration for each group of workers, giving the more powerful equipment to those who do programming and heavy database work or use mission-critical or heavy client-server applications, regular configurations to the majority of users, and for least users with the least powerful machines. (5) Initiating a rotation program by replacing computer periodically then rotate the existing machines among the other user groups as per their requirements. (6) Finally, hiring a consultant for two or three hours to point out the most productive features of the new equipment that would best served users' needs would be advisable. (Smith, 1997)
The above article first and foremost argues that higher-priced computers need to be bringing higher cost to the company for purpose of planning for profitability of production and operation of the company. Better computer technology could actually prevent or reduce wastage in terms of materials and supplies in printing reports. The amounts saved in printing better reports have actually multiplier effects on other part of business operation. Most of the time decision must be made if the paper is there on time and best quality hence investing in new and better technology could really be a risk in terms of possible compatibility of the softwares but as noted in the article the problem could be avoided and prevented by proper planning.
Better computer technology also saves much in time and although time may not be frequently noticeable in term of quantitative analysis, its importance to decision making could not be underestimated in business. In fact information must have the quality of timeliness before one benefit from. A business that knows more from its customers a head of its competitors is a better player. Better technology and therefore less cost of doing business and hence better profitability for business produced the concepts of just in time inventory system in production which has revolutionized many on how they should do business better than competitors. This is just a typical example of a qualitative issue involving quality and time that could inevitably affect decision to set sales price and to manage fixed and variable cost for purposes of maximizing profits.
Case 3 State Home Builders In.
As an accountant for a company that was selected by the state to build a number of low-income housing complexes , I have the primary responsibility to track cost for each house constructed, I may consider the proposal of the foreman as to be not illegal since the contract provides that our company would just add 10% to cost as profit but if the resulting allocation would be disadvantageous to the state then the contract may lose its legal ground to be upheld by uniformly allocating unnecessary costs on per unit basis rather than on basis of other reasonable criteria like the ratio of direct labor hours spent on per unit basis. Allocating indirect cost using direct labor hours on a per unit basis would rationally distribute costs since bigger housing units would normally absorb more direct labor hours hence bigger cost than would low-income housing units would absorb. By so doing would make it very fair for low-income housing units buyers since they would be buying at the right price because the indirect costs are properly allocated to said housing units.
As to whether it is unethical to follow the proposal of foreman, it is always unethical to do that because the customer who will shoulder the big amount of cost will be the low-income group of people and that would stealing further from these people by being a part of plan to deprive them to provide a roof over their heads. As an accountant, it is not correct to agree to the foreman of the organization as I belong to other functional area of the organization, that is accounting, which must exercise independence of mind. It is not a good idea to increase the cost of building houses for the low-income people, even though the government pays out company. Honesty must be practiced and saving some money for the government must be practices to be able use the money to for welfare of other people.
Suppose I argue that overhead should continue to be allocated on the basis of direct labor hours and after hearing my points, the group votes to go with the production foreman and allocate the overhead on a per-house basis, I would have to stay with my decision. My responsibility as accountant is not only with the nods of the people in the organization but with the profession. As a trained professional I must assert independence of mind in decision as my responsibility as a CPA or CEO extends to the public. I owe a duty to state and to the would be owners of the houses. If they insist I could invoke the claim they may be part of a great plain to corrupt the state and deprive the people of their right to acquire houses at affordable prices. Making decision is not easy for it may really involved conflict between personal, organizational and societal values (Scott, 1998) but one which a framework to base his or her decision may find it easier to resolve such seeming conflicts and such was done in this case by applying the professional ethics of the accountant.
Business issues can not simply be simple technical issues. A decision in business is governed also by other issues like legal issues and ethical issues. We have seen in the case of Pickmore International on how it has to make a decision considering the constraints involved. By weighing things it was advisable to take the order under conditions that it will treat the facilitating payment as business. In the second case, it was provided that investing in new technology that may entail higher invests will necessary entail higher cost. In so doing there could be trade off between fixed cost and variable cost that would bring better profitability for a business. In the case of State Home Builders Inc, we have the role that an accountant or CPA must do with regard to a broad responsibility to society and over and above to the desire of some organizational personnel to produce more money. Business is not just about money. It is also about ethics and the law.
See Appendix A. Computation of Incremental profit or loss in case of additional order.
Scott, G. (1998) Making Ethical Choices, Resolving Ethical Dilemmas, Book by; Paragon House, 1998
Smith,S. (1997) The Smart Way to Invest in Computers; Journal of Accountancy, Volume: 183. Issue:5, p. 63
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