Read the scenario below, and address the subsequentrequirements.
Emma is the plant manager of an electronics company.Plant managers are paid a salary and get an additional bonus equalto 5% of their base salary if their division meets or exceedstarget profits for the year. The bonus is determined after thecompany’s annual financial report has been prepared and issued toshareholders.
Emma’s division uses a process costing system where theestimate of the percentage completion of ending work in processinventories affects the unit costs of finished goods and thereforethe cost of goods sold. (All units completed and transferred out ofthe final processing department were sold.)
Emma just received preliminary profit figures for herdivision which show it is within $200,000 of making the year’starget profits. To earn her bonus, Emma simply needs to convinceJames, her lead production supervisor, to increase the estimate ofthe percentage complete of ending work in process inventory. Jameshas already submitted the percentage completion figures tocorporate headquarters.
In your post, address the following questions:
What are the ethical issues in this process costingenvironment? What are the risks?
Do you think Joe should go along with Emma's request toalter estimates of the percentage completion? Why or whynot?
