Cases in Managerial Accounting

Question 1

Versan Dixon is the supervisor of the Artwell Division of Cygnet Limited. Her annual bonus is based on the success of new products and is computed on the number of sales that exceed each new product’s projected breakeven point. In reviewing the computations supporting her most recent bonus, Ms Dixon found that although an order for 7,500 units of a new product called Rosolon had been refused by a customer and returned to the company, the order had been included in the calculations. She later discovered that the company’s accountant had labeled the return an overhead expense and had charged the entire cost of the returned order to the plant wide Manufacturing Overhead account. The result was that Rosolon appeared to exceed breakeven by more than 5,000 units and Ms Dixon’s bonus from this product amounted to over $800.

Required:

From the facts of the case outline the ethical issues and state clearly what action should be taken by Ms Dixon.

Answer:

Upon providing a sufficient answer to the question above it is prudent to define the term ethics. The system that defines right and wrong and provides a guiding philosophy for every decision you make is referred to as Ethics. It may also be described as moral principles that explain how individuals meet the challenge of doing the right thing. According to John C. Maxwell there are two aspects to ethics. The first he says, involves the ability to discern right from wrong, good from evil, and propriety from impropriety. The second involves the commitment to do what is right, good, and proper.

Now that a precursor to answering the question was provided it is necessary to outline the ethical issues relevant to the case.

Competence – generally, management accountant must maintain an appropriate level of knowledge and skill; follow the laws, rules and technical standards; and prepare reports that are clear and complete based on reliable and relevant information after appropriate analysis. In Ms. Dixons case as...