Standard Costing, Ethical Behavior, Usefulness of Costing Pat  James,  the  purchasing  agent  for  a  local  plant  of  the  Oakden  Electronics  Division,  was  considering  the  possible purchase of a component from a new supplier.  The component’s purchase price, $0.90 compared favorably with the standard price of $1.10.  Given the quantity that would be purchased, Pat knew that the favorable price variance would help to offset an unfavorable variance for another component.    By offsetting the unfavorable variance, his overall performance report would be impressive and good enough to help him qualify for the annual bonus. More importantly, a good performance rating this year would help him to secure a position at division headquarters at a significant salary increase. Purchase of the part, however, presented Pat with a dilemma.  Consistent with his past behavior, Pat made inquiries regarding the reliability of the new supplier and the part’s quality.  Reports were basically negative.  The supplier had a reputation for making the first two or three deliveries on schedule but being unreliable from then on.  Worse, the part itself was of questionable quality.    The  number  of  defective  units  was  only  slightly  higher  than  that  for  other suppliers, but the life of the component was 25% less than what normal sources provided. If the part were purchased, no problems with deliveries would surface for several months.  The problem of shorter life would  cause  eventual  customer  dissatisfaction  and  perhaps  some  loss  of  sales,  but  the  part  would  last  at  least  18 months after the final product began to be used.  If all went well, Pat expected to be at headquarters within 6 months.  He  saw  little  personal  risk  associated  with  a  decision  to  purchase  the  part  from  the  new  supplier.by  the  time  any problems  surfaced,  they  would  belong  to  his  successor. With this rationalization, Pat decided to purchase the component from the new supplier. Review the discussion on corporate ethical standards. Identify the standards that might apply to Pat’s situation. Should every company adopt a set of ethical standards that apply to its employees, regardless of their specialty

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Standard Costing, Ethical Behavior, Usefulness of Costing

Pat  James,  the  purchasing  agent  for  a  local  plant  of  the  Oakden  Electronics  Division,  was  considering  the  possible purchase of a component from a new supplier.  The component’s purchase price, $0.90 compared favorably with the standard price of $1.10.  Given the quantity that would be purchased, Pat knew that the favorable price variance would help to offset an unfavorable variance for another component.    By offsetting the unfavorable variance, his overall performance report would be impressive and good enough to help him qualify for the annual bonus. More importantly, a good performance rating this year would help him to secure a position at division headquarters at a significant salary increase. Purchase of the part, however, presented Pat with a dilemma.  Consistent with his past behavior, Pat made inquiries regarding the reliability of the new supplier and the part’s quality.  Reports were basically negative.  The supplier had a reputation for making the first two or three deliveries on schedule but being unreliable from then on.  Worse, the part itself was of questionable quality.    The  number  of  defective  units  was  only  slightly  higher  than  that  for  other suppliers, but the life of the component was 25% less than what normal sources provided. If the part were purchased, no problems with deliveries would surface for several months.  The problem of shorter life would  cause  eventual  customer  dissatisfaction  and  perhaps  some  loss  of  sales,  but  the  part  would  last  at  least  18 months after the final product began to be used.  If all went well, Pat expected to be at headquarters within 6 months.  He  saw  little  personal  risk  associated  with  a  decision  to  purchase  the  part  from  the  new  supplier.by  the  time  any problems  surfaced,  they  would  belong  to  his  successor. With this rationalization, Pat decided to purchase the component from the new supplier.

  1. Review the discussion on corporate ethical standards. Identify the standards that might apply to Pat’s situation. Should every company adopt a set of ethical standards that apply to its employees, regardless of their specialty?

             

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