Managerial Accounting for Managers
4th Edition
ISBN: 9781259578540
Author: Eric Noreen, Peter C. Brewer Professor, Ray H Garrison
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 1, Problem 1.7E
Ethics In Business
Consumers and attorney generals in more than 40 states accused a prominent nationwide chain of auto repair shops of misleading customers and selling them unnecessary parts and services, from brake jobs to front-end alignments. Lynn Sharpe Paine reported the situation as follows in Managing for Organizational Integrity” Harvard Business Review Volume 72 Issue 3:
In the face of declining revenues, shrinking market share, and an increasingly competitive market. . . management attempted to spur performance of its auto Centers.. . . The automotive service advisers were given product-specific sales quotas—sell so many springs shock absorbers, alignments, or brake jobs per shift—and paid a commission based on sales. . .
[F]ailure to meet quotas could lead to a transfer or a reduction in work hours. Some employees spoke of the “pressure. Pressure, pressure” to bring in sales.
This pressure-cooker atmosphere created conditions under which employees felt that the only way to satisfy top management was by selling products and services to customers that they didn’t really need.
Suppose all automotive repair businesses routinely followed the practice of attempting to sell customers unnecessary parts and services.
Required:
- How would this behavior affect customers? How might customers attempt to protect themselves against this behavior?
- How would this behavior probably affect profits and employment in the automotive service industry?
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complexity of its financial transactions.
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Chapter 1 Solutions
Managerial Accounting for Managers
Ch. 1 - Prob. 1.1QCh. 1 - Pick any major television network and describe...Ch. 1 - If you had to decide whether to continue making a...Ch. 1 - Why do companies prepare budgets?Ch. 1 - Prob. 1.5QCh. 1 - Why is managerial accounting relevant to...Ch. 1 - Prob. 1.7QCh. 1 - Why do management accountants need to understand...Ch. 1 - Prob. 1.9QCh. 1 - Pick three industries and describe how the risks...
Ch. 1 - Pick any large company and explain three ways that...Ch. 1 - Why do companies that implement Lean Production...Ch. 1 - Why are leadership skills important to managers?Ch. 1 - Why are leadership skills important to managers?Ch. 1 - Planning and Control Many companies use budgets...Ch. 1 - Controlling Assume that you work for an airline...Ch. 1 - Prob. 1.3ECh. 1 - Ethics and the Manager Richmond, Inc., operates a...Ch. 1 - Prob. 1.6ECh. 1 - Ethics In Business Consumers and attorney generals...Ch. 1 - Prob. 1.9ECh. 1 - Corporate Social Responsibility In his book...Ch. 1 - Prob. 1.11ECh. 1 - Cognitive Bias and Decision Making During World...Ch. 1 - Ethics and Decision Making Assume that you just...
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- Consider the following conversation between Leonard Bryner, president and manager of a firm engaged in job manufacturing, and Chuck Davis, certified management accountant, the firms controller. Leonard: Chuck, as you know, our firm has been losing market share over the past 3 years. We have been losing more and more bids, and I dont understand why. At first, I thought that other firms were undercutting simply to gain business, but after examining some of the public financial reports, I believe that they are making a reasonable rate of return. I am beginning to believe that our costs and costing methods are at fault. Chuck: I cant agree with that. We have good control over our costs. Like most firms in our industry, we use a normal job-costing system. I really dont see any significant waste in the plant. Leonard: After talking with some other managers at a recent industrial convention, Im not so sure that waste by itself is the issue. They talked about activity-based management, activity-based costing, and continuous improvement. They mentioned the use of something called activity drivers to assign overhead. They claimed that these new procedures can help to produce more efficiency in manufacturing, better control of overhead, and more accurate product costing. A big deal was made of eliminating activities that added no value. Maybe our bids are too high because these other firms have found ways to decrease their overhead costs and to increase the accuracy of their product costing. Chuck: I doubt it. For one thing, I dont see how we can increase product-costing accuracy. So many of our costs are indirect costs. Furthermore, everyone uses some measure of production activity to assign overhead costs. I imagine that what they are calling activity drivers is just some new buzzword for measures of production volume. Fads in costing come and go. I wouldnt worry about it. Ill bet that our problems with decreasing sales are temporary. You might recall that we experienced a similar problem about 12 years agoit was 2 years before it straightened out. Required: 1. Do you agree or disagree with Chuck Davis and the advice that he gave Leonard Bryner? Explain. 2. Was there anything wrong or unethical in the behavior that Chuck Davis displayed? Explain your reasoning. 3. Do you think that Chuck was well informedthat he was aware of the accounting implications of ABC and that he knew what was meant by cost drivers? Should he have been well informed? Review (in Chapter 1) the first category of the Statement of Ethical Professional Practice for management accountants. Do any of these standards apply in Chucks case?arrow_forward1. (Political Motivations for Policies) Ever since the unethical actions of some employees of Enron Corp. first came to light, ethics in accounting has been in the news with increasing frequency. The unethical actions of the employees essentially involved their selection of certain accounting policies for the company. In many instances, GAAP does allow firms some flexibility in their choice of legitimate accounting policies. This is true, for example, in choosing an inventory cost formula. However, the company's choice of policies may ultimately be influenced by several specific factors. Instructions State three of these factors and explain why each of them may influence an accounting policy choice.arrow_forwardIn the scenario, where employer has been putting more emphasis on controlling costs for the various businesses. With the slowing of overall spending in one sector, while ordering managers to closely monitor expenses, selling several companies and giving vice presidents greater responsibility for statements of financial positions. Whatpositive and negative consequences might this pose to the company in future fraud prevention? Outline at least three of each type.arrow_forward
- The SEC is trying to get companies to notify the investment community more quickly when a "material change" will affect their forthcoming financial results. In what sense might a financial manager be seen as "more ethical" if he or she follows this directive and issues a press release indicating that sales will not be as high as previously anticipated? A manager at a "Check Into Cash" business (see Focus on Ethics box on page 192) defends his business practice as simply "charging what the market will bear." "After all," says the manager, "we don't force people to come in the door." How would you respond to this ethical defense of the payday-advance business? Bond rating agencies have invested significant sums of money in an effort to determine which quantitative and nonquantitative factors best predict bond defaults. Furthermore, some of the raters invest time and money to meet privately with corporate personnel to get nonpublic information that is used in assigning the issue's bond…arrow_forwardCorrecting internal control weakness Each of the following situations has an internal control weakness. Jade Applications has decided that one way to cut costs in the upcoming year is to fire the external auditor. The business believes that the internal auditor should be able to efficiently monitor the company’s internal controls. In an effort to minimize the amount of paperwork, Ross Homes has decided that it will not keep copies of customer invoices related to sales revenue. Ross believes that this effort will minimize the amount of data storage the company will have to pay for. Elle Bee, a trusted employee for many years, has never taken a vacation. The owner believes that he’s lucky that she is so committed to her job. The Medicine Chest Company keeps a small petty cash fund to handle small cash transactions. Because no one wants to volunteer to be the custodian, the business manager has decided that all employees should have access to the petty cash. She figures that as long as…arrow_forwardThe head of the accounting department is not satisfied with the implementation of the new system. He believes that the new system will result in job losses for many of the bookkeepers. They are threatening industrial action. In your role as project sponsor, what should you do to resolve the situation?arrow_forward
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