Advanced Management Accounting Case:
In Early October, Priscilla Musso, general manager of theSpecialty Products Division (SPD) of Consolidated Furniture Corp.(CFC), was studying the division's third quarter financial reports.Sales were running significantly below plan, and it became quiteclear to Priscilla that SPD would need strong performance in thelast quarter of the year in order to reach its annual profittarget. Meeting budget was very important to Priscilla and hermanagement team because they were included in CFC's lucrativeexecutive bonus program, and they would lose all of their bonusopportunities if SPD did not achieve the profit targets.
To brainstorm for ideas, Priscilla called her management teamtogether. At first the managers on the team expressed onlydiscouragement. Everybody had been working hard, but the market wassoftening, and competitors were being very aggressive.
Then, after some delay with nobody else suggesting any options,Jonathan Robbins, SPDâs manager of sales and marketing, suggestedthat the division could implement a new sales program to pull somesales that might ordinarily be made net year into the current year.Any customers who accepted delivery in the fourth quarter would nothave to pay their invoice for six months. (Normally payment in theindustry were to be made within 30 days.)
Priscillaâs first reaction was favorable; this program might,indeed, achieve the desired result. But she asked the members ofher tea for their reactions.
Shirley Covey, manager of human resources noted that if thisprogram was successful, it would probably cause SPDâs employees tohave to work overtime at the end of the year, and that wassomething they traditionally did not want during the holidayseason. But Priscilla reminded Shirley that the employees would bepaid time-and-a-half for all the overtime hours that theyworked.
Priscilla asked Bill Bennett, SPDâs controller, if this programwould violate any accounting rules. Bill said there would be noproblem recording the sales as long as the items were shipped andbilled before December 31. The accounting would be consistent withGAAP. But Bill cautioned that this program was probably onlyproviding a short-term, cosmetic profit improvement. While it mightwell make the current year look better, it would probably causesignificantly lower sales to be recorded in the first quarter ofnext year. So next year the division would start in a deep hole.They would be scrambling all year to trying to dig themselves outof that hole, with no guarantees that they could pull it off. Itwas just postponing the problem. In addition, Bill reminded theteam that this program would be very expensive. On top of theovertime expense that would have to be incurred in the productionareas, the program would greatly increase SPDâs accountsreceivable. CFC was currently paying about 12% on its lines ofcredit, so this increase in working capital would be quiteexpensive for the corporation.
But Priscilla cut Bill short. She reminded him that CFC did notallocate interest expenses to SPD, so she was not particularlyconcerned about the corporationâs increased borrowing costs. Shewas more worried with her superiorsâ negative reactions if she didnot make this yearâs profit plan than she was about their reactionsto her allowing the receivablesâ balance to increase in the earlypart of the year. And while she acknowledged that they might becreating a problem for next year, she suggested it would be best toworry about that problem when, and if, it became real.
With no other options on the table to solve the current yearâsbudget problem, the SPD managers decided, unanimously, to implementwhat they called the âSales Acceleration Program.â
1. Identify the ethical dilemma--Identify and analyze primaryand secondary issues related to this ethical dilemma and impact onvarious stakeholders.
2. Analyze the ethical alternatives--Analyze alternativeresolutions to this ethical dilemma, the impact on variousstakeholders, and the reasons specific stakeholders prefer eachalternative.
3. Resolution of the ethical dilemma--Use an ethical frameworkto determine the most appropriate resolution of this ethicaldilemma. Use one of the ethical frameworks.
Advanced Management Accounting Case:
In Early October, Priscilla Musso, general manager of theSpecialty Products Division (SPD) of Consolidated Furniture Corp.(CFC), was studying the division's third quarter financial reports.Sales were running significantly below plan, and it became quiteclear to Priscilla that SPD would need strong performance in thelast quarter of the year in order to reach its annual profittarget. Meeting budget was very important to Priscilla and hermanagement team because they were included in CFC's lucrativeexecutive bonus program, and they would lose all of their bonusopportunities if SPD did not achieve the profit targets.
To brainstorm for ideas, Priscilla called her management teamtogether. At first the managers on the team expressed onlydiscouragement. Everybody had been working hard, but the market wassoftening, and competitors were being very aggressive.
Then, after some delay with nobody else suggesting any options,Jonathan Robbins, SPDâs manager of sales and marketing, suggestedthat the division could implement a new sales program to pull somesales that might ordinarily be made net year into the current year.Any customers who accepted delivery in the fourth quarter would nothave to pay their invoice for six months. (Normally payment in theindustry were to be made within 30 days.)
Priscillaâs first reaction was favorable; this program might,indeed, achieve the desired result. But she asked the members ofher tea for their reactions.
Shirley Covey, manager of human resources noted that if thisprogram was successful, it would probably cause SPDâs employees tohave to work overtime at the end of the year, and that wassomething they traditionally did not want during the holidayseason. But Priscilla reminded Shirley that the employees would bepaid time-and-a-half for all the overtime hours that theyworked.
Priscilla asked Bill Bennett, SPDâs controller, if this programwould violate any accounting rules. Bill said there would be noproblem recording the sales as long as the items were shipped andbilled before December 31. The accounting would be consistent withGAAP. But Bill cautioned that this program was probably onlyproviding a short-term, cosmetic profit improvement. While it mightwell make the current year look better, it would probably causesignificantly lower sales to be recorded in the first quarter ofnext year. So next year the division would start in a deep hole.They would be scrambling all year to trying to dig themselves outof that hole, with no guarantees that they could pull it off. Itwas just postponing the problem. In addition, Bill reminded theteam that this program would be very expensive. On top of theovertime expense that would have to be incurred in the productionareas, the program would greatly increase SPDâs accountsreceivable. CFC was currently paying about 12% on its lines ofcredit, so this increase in working capital would be quiteexpensive for the corporation.
But Priscilla cut Bill short. She reminded him that CFC did notallocate interest expenses to SPD, so she was not particularlyconcerned about the corporationâs increased borrowing costs. Shewas more worried with her superiorsâ negative reactions if she didnot make this yearâs profit plan than she was about their reactionsto her allowing the receivablesâ balance to increase in the earlypart of the year. And while she acknowledged that they might becreating a problem for next year, she suggested it would be best toworry about that problem when, and if, it became real.
With no other options on the table to solve the current yearâsbudget problem, the SPD managers decided, unanimously, to implementwhat they called the âSales Acceleration Program.â
1. Identify the ethical dilemma--Identify and analyze primaryand secondary issues related to this ethical dilemma and impact onvarious stakeholders.
2. Analyze the ethical alternatives--Analyze alternativeresolutions to this ethical dilemma, the impact on variousstakeholders, and the reasons specific stakeholders prefer eachalternative.
3. Resolution of the ethical dilemma--Use an ethical frameworkto determine the most appropriate resolution of this ethicaldilemma. Use one of the ethical frameworks.
