Sherell Adams
Ethics Case 8-7
1. Ethical Dilemma
Moncrief Company agreed to pay Jim Lester 20% of the gross profit made from the 2013 sales of the Zelenex. Between January 1, 2013 and December 28, 2013, Moncrief’s total available units for sale were, 50,000 units of Zelenex for $30.00 per unit ($1,500,000). Also in addition to the former activities, Moncrief sold 35,000 units for $60.00 per unit ($2,100,000). Moncrief Company uses periodic LIFO inventory method as a result, Jim Lester was to receive $210,000. (Textbook pg.469)
However, Moncrief Company has the opportunity to purchase an additional 20,000 units for $10 more per unit before year-end. If Moncrief decides to make the additional purchase, then Jim will only receive $170,000 due to an increase in
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Purchase Before or After Year – End
To make the additional purchase of Zelenex in 2014 would be the ethical decision. According to the textbook, “the company would sell the additional 20,000 units of Zelenex in 2014. It is also stated that the remaining 15,000 units is sufficient enough to carry sales for six months”, therefore there is no need for Moncrief to make an immediate purchase. (pg.469) The results of this activity would have a higher Net income, but a lower cost of goods sold on the Income statement and a higher retained earnings on the Balance Sheet.
However, making the purchase before year-end would be unethical and have a significant impact on the Income Statement. The purchase would increase cost of goods sold (COGS) by $200,000, sales revenue on the other hand, would be unaffected. The increase would lower the gross profit. A lower gross profit decreases the amount of income tax, but also lowers net income by $160,000. The impact on the income would result in a lower Net income and a higher cost of goods sold. The retained earnings on the Balance Sheet would decrease. To compare the outcome of each decision (See Summary & Journal). (Accounting Coach COGS and I/S
In the beginning of March the newly joint corporation, McKesson HBOC started a negotiating process with Oracle Corporation. Unfortunately for McKesson, the negotiations ended without a contract. On April 1 Bergonzi let Hawkins know that he found an offer that could be a good deal. The agreement would require McKessonHBOC to sell $20 million worth of software to Data General, along with a license and a right to return any inventory that was not sold during the period of 6 months. The corporation would also have to help Data General find customers for the product. In return, they could buy $25 millions worth of computer hardware. The contract was signed on April 5 the same year. The senior management thought that backdating the sales and purchases would raise the company's revenues up to the desired levels. In order to cover their actions, the company created a false delivery receipt that showed the date of the delivery as March 31, 1999, while in reality the product was delivered in April. Both, the information about the $25 Million purchase of hardware from Data General as well as the return agreement concealed from the public.
Finally, is it reasonable to assume that Main Line’s pretax cash position would have increased by 3 million dollars or would some part of this have been paid to others? The first question that must be answered to make this assumption is--are there contractual claims against the profits in this case? The answer is yes. Main Line, however, never includes any deductions for the claims made on these profits. It’s apparent that they should have done so.
Aldo shipped 10 refrigerators to Rafael pursuant to a sales contract under which title to the goods and risk of loss would pass to Rafael upon delivery to Fleet Railroad. The agreed price was $5,000. When the refrigerators were delivered to Rafael, he found they were damaged. An estimate for repairing them showed it would cost up to $1,000, and an expert opinion was to the effect that they were defective when shipped. Rafael put in a claim to Aldo, which Aldo rejected. Rafael then wrote to Aldo, “I don’t like to get into a despite of this nature. I am enclosing my check for $4,000 in full payment of the shipment.” Aldo did not reply, but he cashed the check and then sued Rafael for the $1,000 balance. May he recover? Explain.
Expected demand for the month of August is 373 orders. To make one order of Double Team, we will need 75 grams of Fries, 33.3 ml of Oil, 50g of Nuggets, 12.5 grams of Juice Powder, and 16 ounces of Water. Total quantity needed to produce 373 units would be 27,937.98 grams of fries, 18,625.32 grams of nuggets, 12,404.46 ml of oil, 4,656.33 grams of juice powder, and 5,960.10 ounces of water, total cups and straws would then be 373 pieces each. At least 16 units of Double Team a day must be sold to meet the expected demand of 373
A company known as Apex Art was recently asked to prepare a bid on 500 pieces of framed artwork for a new hotel. If Apex Art wins the bid, then the benefits would lead directly to sales representative Jason Grant, whose income relies on commission. In other words, he would receive a large sum of money as a result of the winning bid. The cost accountant for Apex, Sonja Gomes, prepared the bid and calculated the total product costs of the framed artwork to be $121,000. Since the company policy states that the pricing must be at 125% of full cost, Gomes provides Grant a total amount of $151,200 to submit for the job. Grant notifies Gomes that at the price of $151,200, the company is incapable of winning the job. He confesses to Gomes that he had spent $500 of company funds to treat the hotel’s purchasing agent to a basketball playoff game where the purchasing agent revealed to him that a bid of $145,000 would win the job. At first, Grant had no intention of letting Gomes know of this information because he was sure that she would have developed a bid that would be below the amount that the purchasing agent told him about, $145,000. Therefore, he thoroughly explains to Gomes that if the company does not take advantage of the important information that the purchasing agent had revealed to him, then the $500 of company funds that he had spent would go to waste. Nevertheless, Apex Art would still generate some profit if it wins the bid at $145,000 because it is higher than the full cost of $121,000. In order to come to fair grounds, Gomes advises Grant to use cheaper materials for the frame, which will assist him in attaining a bid of $145,000. Since the artwork was pre- selected and thus cannot be altered, the total amount of cost redu...
The sales director proposed that if the firm were to reduce the price of Item 345 to FF15.00/m, they would be able to increase sales to 175,000 units (or 25% of industry volume). But if they were to keep the price at the current value of FF20.00/m, they would be able to sell not less than 75,000 units (or 11% of industry volume).
From a P&L standpoint, a dollar saved in vendor cost is reflected as a dollar increase in profit (and cash on hand) where as a dollar increase in sales is only marginally reflected in profit once you subtract operating cost:
The company is using a batch shop process flow structure. CBF, Inc. bases its board fabrication process on the average job size or on its typical order. This means that the company proceeds with the manufacturing process in batches so as to meet the specific requirements per order. The typical contract that the company currently gets is 60 boards per order. However, due to persisting factory defects, they manufacture a total of 75 boards per batch in order to compensate for 20% of the boards that they typically reject during the process.
3. Assuming Noah made 6-month payments on its wood purchases from Indonesia, what is the schedule of foreign currency amounts over
Lululemon’s has to produce and sell 150,000 jackets in order to cover their total expenses, fixed and variable. At this level of sales, Lululemon’s will breakeven (profit = loss).
The benefits of these assumptions are that while maintaining the current growth rate of 13%; we can maintain our COGS. One of the major factors contributing to the firm’s poor profit margin is operating expenses.
Signode Industries Inc. - Providing Packaging Solutions Executive Summary SIGNODE INDUSTRY: DILEMMA AT HAND: Mr. Gary Reed, President of Signode Industries packaging division, is in a dilemma as what he should be his course of action to meet the 6.8% increase in price of cold rolled steel- the raw material used in manufacture of Signode’s primary product, steel strapping. There are few options given in the case: Increase Signode’s strapping prices to offset the increased price of cold – rolled steel. Maintain Signode’s current book prices as increasing prices would affect sales force morale. Introduce price-flex model as proposed by Jack Davis i.e. a kind of selective discounting or premium charging for customized services. Recommendations Reason: (All data in accordance to 1983) In accordance to Exhibit 1: Sales of Packaging Division of the company = $285,950 In accordance to Table A: Sales of Apex = 33.3% of $285,950 Sales of BBM = 26.8% of $285,950 Sales of HDM = 33.4% of $285,950 Sales of Customized Products = 6.5% of $285,950 In accordance to Exhibit 4: Similarly, For Apex: As it has a capacity utilization of 71% now, Suppose a sale is $100. Then contribution is $39.15 Therefore variable cost is $60.85. Now if we increase the capacity utilization to 100%, Sales becomes $ 141 since production increases by [(100-71)/71] * 100 = 41% Variable Cost = 141% of 60.85 = $85.8 Fixed Cost = 69.38% * 12.3 = $8.53 Total Cost = 85.8+8.53 = $94.33 EBIT = Sales – Variable cost – Fixed Cost = $46.67 % of EBIT = [(46.67/141) * 100] = 33.09% Suppose the company sales 100x units, the total cost was 69.38. Thus per unit cost was .6938. Now the company sells 141x units, the total cost...
We know that it was going to be expensive to produce the product but we are confident that no matter the cost of production, our sales would greatly succeed the cost. The cost of producing a 5 oz. can was about 75 to 80 cents if they can produce 100,000 per month. If we were to produce 50,000 cans per month, that cost would rise by 5 to 10 cents per can. A 10 oz. can would cost about 25% more than a 5 oz. can would to produce. With those numbers, 100,000 5 oz. cans would cost us about $900,000-$960,000 per year to produce. 50,000 5 oz. cans would cost us $750,000. 100,000 10 oz. cans would cost us $1.125M-$1.2M a year...
If the company follow this recommendations, it will obtain a profit of $ 531,000 that represents $180,000 more than with seasonal production
Larry Barr has recently been promoted to the district sales manager position for G.E. Appliances. One of his more important duties was the allocation of his district sales quota among his five salesmen. He received his 2002 quota in October 2001 at which time his immediate task was to determine an equitable allocation of that quota. This was important because the company’s incentive pay plan was based on the salesmen’s attainment of quota and a portion of his remuneration was based on the degree to which his sales force met their quotas.