Ethics Essay

April 28, 2014

T/TR 9:30-10:45

Ethic’s Essay

Shaving 5% off of the estimated direct labor –hours will result in a high overhead rate. This will lead to over applied overhead for the year. This over applied overhead will be closed out to cost of goods sold at the end of the year. If you shave the 5% you are taking that money out of investing it into the business and using it as a Christmas bonus. Inflating the cost of goods sold in all the month’s prior causes a big boost in net income at the end of the year. This will also cause retrained earnings and inventory to be higher than they actually are. If the budget were closed out every month or quarter instead this effect would be dissipated over the year.

Cristin is in a tough situation here. She just got a new job and wants to get on her bosses good side and transition smoothly. Does she do what her boss wants her to do or does she do what is best for the company? With this process of shaving 5% this will cause distortions to the net operating income over the years and the inventory at the end of the year will be overstated along with retained earnings. While siding with her boss and getting a Christmas bonus may sound nice she should not do it. With her job come standards and ethics. Under the Ethical Professional Practice, Cristin is required to “disclose all relevant information” of the company that could influence someone’s understanding of a company report. With this being said Cristin should not go along with her general manager’s request because it could cost her, her job if the company leaders or anyone else finds out.