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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Manny Carson, certified management accountant and controller of Wakeman Enterprises, has been given permission to acquire a new computer and software for the company’s accounting system. The capital investment analysis showed an NPV of $100,000. However, the initial estimates of acquisition and installation costs were made on the basis of tentative costs without any formal bids. Manny now has two formal bids, one that would allow the firm to meet or beat the original projected NPV and one that would reduce the projected NPV by $50,000. The second bid involves a system that would increase both the initial cost and the operating cost.

Normally, Manny would take the first bid without hesitation. However, Todd Downing, the owner of the firm presenting the second bid, is a close friend. Manny called Todd and explained the situation, offering Todd an opportunity to alter his bid and win the job. Todd thanked Manny and then made a counteroffer.

Todd: Listen, Manny, this job at the original price is the key to a successful year for me. The revenues will help me gain approval for the loan I need for renovation and expansion. If I don’t get that loan, I see hard times ahead. The financial stats for loan approval are so marginal that reducing the bid price may blow my chances.

Manny: Losing the bid altogether would be even worse, don’t you think?

Todd: True. However, if you award me the job, I’ll be able to add personnel. I know that your son is looking for a job, and I can offer him a good salary and a promising future. Additionally, I’ll be able to take you and your wife on that vacation to Hawaii that we’ve been talking about.

Manny: Well, you have a point. My son is having an awful time finding a job, and he has a wife and three kids to support. My wife is tired of having them live with us. She and I could use a vacation. I doubt that the other bidder would make any fuss if we turned it down. Its offices are out of state, after all.

Todd: Out of state? All the more reason to turn it down. Given the state’s economy, it seems almost criminal to take business outside. Those are the kind of business decisions that cause problems for people like your son.

Required:

Evaluate the ethical behavior of Manny. Should Manny have called Todd in the first place? Would there have been any problems if Todd had agreed to meet the lower bid price? Identify the parts of the Statement of Ethical Professional Practice (Chapter 1) that Manny may be violating, if any.

To determine

Assess the ethical behavior of Person M. State whether Person M should have called Person T in the first place. Identify the problems Person T had agreed to meet the lower bid price. Point out whether Person M violated any parts of statement of ethical professional practice or not.

Explanation

Statement of Ethical Professional Practice:

Statement of ethical professional practice consist the code of ethical conduct for management accountants. These codes govern global issues and these codes are incorporated with the international codes.

The bid met all the requirements of the company as it is clear from the statement that Person M would have opted for the bid. The business must be given to the bid of Person M’s friend if it had met the requirements. Friendship and previous experiences are the reason for this decision because Person M is familiar in dealing with Person T’s company. Person M was uncertain about the execution of bid’s requirements because the highest bid was from out of state. The call is unethical if the purpose of it was friendship and it is believed that the winning bid is capable of execution of the requirement...

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