es Case Metal Creations, Inc., is a custom manufacturer that uses a job order co
ID: 2518722 • Letter: E
Question
es Case Metal Creations, Inc., is a custom manufacturer that uses a job order costing system Cu rently, Metal Creations has 35% excess capacity in its factory. Charlie Rollins, the president ha instituted a campaign to to obtain new customers. Rollins has offered the salespeople a bonus equal 25% of the gross profit on work for new customers. The average gross profit rate has been 30% of the contract price. Steve Starling, the sales manager for Metal Creations, wants to submit a proposal to a new customer that undercuts the usual pricing structure by 30%. As a result, this Job would have no gross profit using the regular job order costing system. Instead, Starling suggests that the overhead rate applied to this job should be only 40% of the normal overhead rate, resulting in a gross profit of 28%. Starling suggests that the controller should handle this contract herself, and that no one else in the organization should know about it, especially the other salespeople, because the creative approach to overhead application might create problems. Required Does taking an order at a significantly reduced price create an ethical problem? lD accounting for a particular order create an ethical problem? Does asking the corn contract and keep the accounting confidential create an ethical problem?Explanation / Answer
Yes, Taking an order at a significantly reduced price will create ethical problem because as per fair practices of the business an organization should not adopt such business policies & practices which lead to unfair competition will not be acceptable. In other words we can say that keeping prices of its’ product & services intentionally to achieve any specific order will be treated as unethical. So as per information of this question, it is clearly given that Metal Creations Inc. intentionally keeps its’ prices low than normal prices to achieve that order hence it is unethical.
Yes, altering the accounting for a particular order create an ethical problem because an business organization must follow uniform accounting policies for reporting & presentation of business transactions and if uniform accounting policies are not adopted then it create ethical problem for the business. In other words we can say that any type of altering in the accounting policies & practices for taking short-term advantages will be violation of business ethics.
Asking the controller to handle the contract and keep the accounting confidential is not a violation of business ethics because it may happens that some specific task can be kept confidential but if such confidential task is finished for hiding some other unethical busienss practices then such contract to keep the accounting confidential will be violation of business ethics and it will create an ethical problem for the company. Thus overall we can say that keeping something confidential will be ethical or unethical depending upon the purpose of such activities. But when we see the case given in the question then it is clear that asking the controller to handle the contract and keep the accounting confidential is a violation of business ethics because purpose of such action is also unethical.
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