Part 3 Ethics Case A Division of the Company uses absorption costing for profit
ID: 2546599 • Letter: P
Question
Part 3 Ethics Case A Division of the Company uses absorption costing for profit reporting. The general manager of the Division is concerned about meeting the income objectives of the division. At the beginning of the reporting period the division had an adequate supply of inventory Fhe general manager has decided to increase production of goods in the plant in order to allocate fixed manufacturing cost over a greater number of unit Unfortunately, the increased production cannot be sold and will increase the inventory.However, the impact on earnings will be positive because the tower cost per unit will be matched against sales. The general manager has come to you, the controller, to determine exactly how much additional production is required in order to increase net income enough to meet the division's profit objectives You analyze the data and determine that the inventory will need to be increased by 40% in order to absorb enough fixed costs and meet the income objective; however, you also determine the increased inventory cannot be sold given existing demand. Prepare your report regarding your decision to the division manager. Requirements: Apply the Guidelines for Ethical Conduct from Chapter 1 to discuss whether General Manager is acting in an ethical manner. The following questions should help you identify and sort out the questions to be considered Identify the consequences and its effects on others including answers to the following questions in 1. this sequence a. What parties (stakeholders) may be harmed or benefited? b. Whose rights or claims may be violated? C. Which specific interests are in conflict? Consider your obligations and responsibilities to the various stakeholders. What is the effect of 2. each alternative on the various stakeholders? Which stakeholders are harmed or benefited most? 3. Make a decision that is fair and ethical to those affected. n ethics. Be sure to provide It may help to research the internet for articles regarding various thoughtso material references for material included in your reportExplanation / Answer
1.
The person affected most by this decision will be Employees of Other Department(Salse, Finance, Inventory storage), Shareholders of the company current creditors of the company. It will be positively effected the Suppliers of Raw material and customers as well as those who are will to provide credit to the company.
The employes in sales department might be effected in such a manner their target will get increased due to the increase in stock that finally increases their work pressure. the finance department has to raise more money the will to have the pressure as the opportunity cost aspect will also affect them. the inventory storage will also be effected because they have to keep more effected because the have to keep more inventory in good condition more than what they exactly have to keep. The equity holders wil bel effected in such a way that their fund will be stuck in that inventory that will not generate any income to them here the divisional manager forgot the opportunity cost concept. there will be a delay to get payment to the existing creditors because most of the funds are stuck with the inventory. the most benefited team will be suppliers because they will more order for their products. The customers get the product at less price due to the decrease in demand. as the company may need more fund the person who is willing to give credit to the company will get good interest because the company needs more fund.
b.Claim and rights of Stakeholders like equity holders employees in a certain department as well as existing creditors will be affected as I explained above.
c. here the personal interest of G.M conflict with the overall interest of the company because he gives more importance to reduce his individual pressure by giving less importance to the interest the major stakeholders of the company.
2. I have the prime responsibility to my equity holders they will be effected in a manner that thier fund will be stuck in that inventory that will not generate any income to them here the divisional manager forgot the opportunity cost concept. The second responsibility is towards existing creditors they will be affected due to the delay in payment.
3. To reduce the current production till the current extra inventory get sold out.