close solutoin list

Make or Buy: Ethical Considerations Pamela McDonald, chief management accountant and controller for Murray Manufacturing Inc., was having lunch with Roger Branch, manager of the company’s power department. Over the past 6 months, Pamela and Roger had developed a romantic relationship and were making plans for marriage. To keep company gossip at a minimum, Pamela and Roger had kept the relationship very quiet, and no one in the company was aware of it. The topic of the luncheon conversation centered on a decision concerning the company’s power department that Larry Johnson, president of the company, was about to make. Pamela: Roger, in our last executive meeting, we were told that a local utility company offered to supply power and quoted a price per kilowatt-hour that they said would hold for the next 3 years. They even offered to enter into a contractual agreement with us. Roger: This is news to me. Is the bid price a threat to my area? Can they sell us power cheaper than we make it? And why wasn’t I informed about this matter? I should have some input. This burns me. I think I should give Larry a call this afternoon and lodge a strong complaint. Pamela: Calm down, Roger. The last thing I want you to do is call Larry. Larry made us all promise to keep this whole deal quiet until a decision had been made. He did not want you involved because he wanted to make an unbiased decision. You know that the company is struggling somewhat, and they are looking for ways to save money. Roger: Yeah, but at my expense? And at the expense of my department’s workers? At my age, I doubt that I could find a job that pays as well and has the same benefits. How much of a threat is this offer? Pamela: Jack Lacy, my assistant controller, prepared an analysis while I was on vacation. It showed that internal production is cheaper than buying, but not by much. Larry asked me to review the findings and submit a final recommendation for next Wednesday’s meeting. I’ve reviewed Jack’s analysis, and it’s faulty. He overlooked the interactions of your department with other service departments. When these are considered, the analysis is overwhelmingly in favor of purchasing the power. The savings are about $300,000 per year. Roger: If Larry hears that, my department’s gone. Pam, you can’t let this happen. I’m 3 years away from having a vested retirement. And my workers—they have home mortgages, kids in college, families to support. No, it’s not right. Pam, just tell him that your assistant’s analysis is on target. He’ll never know the difference. Pamela: Roger, what you’re suggesting doesn’t sound right either. Would it be ethical for me to fail to disclose this information? Roger: Ethical? Do you think it’s right to lay off employees that have been loyal, faithful workers simply to fatten the pockets of the owners of this company? The Murrays already are so rich that they don’t know what to do with their money. I think that it’s even more unethical to penalize me and my workers. Why should we have to bear the consequences of some bad marketing decisions? Anyway, the effects of those decisions are about gone, and the company should be back to normal within a year or so. Pamela: You may be right. Perhaps the well-being of you and your workers is more important than saving $300,000 for the Murrays. Required: 1. Should Pamela have told Roger about the impending decision concerning the power department? What do you think most corporate codes of ethics would say about this? 2. Should Pamela provide Larry with the correct data concerning the power department? Or should she protect its workers? What would you do if you were Pamela?

BuyFind

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
Publisher: Cengage Learning
ISBN: 9781337115773
BuyFind

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
Publisher: Cengage Learning
ISBN: 9781337115773

Solutions

Chapter
Section
Chapter 8, Problem 68C
Textbook Problem

Make or Buy: Ethical Considerations

Pamela McDonald, chief management accountant and controller for Murray Manufacturing Inc., was having lunch with Roger Branch, manager of the company’s power department. Over the past 6 months, Pamela and Roger had developed a romantic relationship and were making plans for marriage. To keep company gossip at a minimum, Pamela and Roger had kept the relationship very quiet, and no one in the company was aware of it. The topic of the luncheon conversation centered on a decision concerning the company’s power department that Larry Johnson, president of the company, was about to make.

Pamela: Roger, in our last executive meeting, we were told that a local utility company offered to supply power and quoted a price per kilowatt-hour that they said would hold for the next 3 years. They even offered to enter into a contractual agreement with us.

Roger: This is news to me. Is the bid price a threat to my area? Can they sell us power cheaper than we make it? And why wasn’t I informed about this matter? I should have some input. This burns me. I think I should give Larry a call this afternoon and lodge a strong complaint.

Pamela: Calm down, Roger. The last thing I want you to do is call Larry. Larry made us all promise to keep this whole deal quiet until a decision had been made. He did not want you involved because he wanted to make an unbiased decision. You know that the company is struggling somewhat, and they are looking for ways to save money.

Roger: Yeah, but at my expense? And at the expense of my department’s workers? At my age, I doubt that I could find a job that pays as well and has the same benefits. How much of a threat is this offer?

Pamela: Jack Lacy, my assistant controller, prepared an analysis while I was on vacation. It showed that internal production is cheaper than buying, but not by much. Larry asked me to review the findings and submit a final recommendation for next Wednesday’s meeting. I’ve reviewed Jack’s analysis, and it’s faulty. He overlooked the interactions of your department with other service departments. When these are considered, the analysis is overwhelmingly in favor of purchasing the power. The savings are about $300,000 per year.

Roger: If Larry hears that, my department’s gone. Pam, you can’t let this happen. I’m 3 years away from having a vested retirement. And my workers—they have home mortgages, kids in college, families to support. No, it’s not right. Pam, just tell him that your assistant’s analysis is on target. He’ll never know the difference.

Pamela: Roger, what you’re suggesting doesn’t sound right either. Would it be ethical for me to fail to disclose this information?

Roger: Ethical? Do you think it’s right to lay off employees that have been loyal, faithful workers simply to fatten the pockets of the owners of this company? The Murrays already are so rich that they don’t know what to do with their money. I think that it’s even more unethical to penalize me and my workers. Why should we have to bear the consequences of some bad marketing decisions? Anyway, the effects of those decisions are about gone, and the company should be back to normal within a year or so.

Pamela: You may be right. Perhaps the well-being of you and your workers is more important than saving $300,000 for the Murrays.

Required:

  1. 1. Should Pamela have told Roger about the impending decision concerning the power department? What do you think most corporate codes of ethics would say about this?
  2. 2. Should Pamela provide Larry with the correct data concerning the power department? Or should she protect its workers? What would you do if you were Pamela?

Expert Solution

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

See Solution

*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.

Chapter 8 Solutions

Managerial Accounting: The Cornerstone of Business Decision-Making
Show all chapter solutions
Ch. 8 - Should joint costs be considered in a...Ch. 8 - Suppose that a product can be sold at split-off...Ch. 8 - Suppose that a firm produces two products. Should...Ch. 8 - Which of the following is not a step in the...Ch. 8 - Costs that cannot be affected by any future action...Ch. 8 - Use the following information for Multiple-Choice...Ch. 8 - Use the following information for Multiple-Choice...Ch. 8 - Use the following information for Multiple-Choice...Ch. 8 - Which of the following statements is false? a....Ch. 8 - In a segmented income statement, which of the...Ch. 8 - In a make-or-buy decision, a. the company must...Ch. 8 - Carroll Company, a manufacturer of vitamins and...Ch. 8 - A segment could be which of the following? a....Ch. 8 - Garrett Company provided the following...Ch. 8 - Jennings Hardware Store marks up its merchandise...Ch. 8 - When a company faces a production constraint or...Ch. 8 - In the keep-or-drop decision, the company will...Ch. 8 - In the sell-or-process-further decision, a. joint...Ch. 8 - Structuring a Make-or-Buy Problem Fresh Foods, a...Ch. 8 - Structuring a Special-Order Problem Harrison Ford...Ch. 8 - Segmented Income Statement Gorman Nurseries Inc....Ch. 8 - Use the following information for Brief Exercises...Ch. 8 - Use the following information for Brief Exercises...Ch. 8 - Structuring the Sell-or-Process-Further Decision...Ch. 8 - Use the following information for Brief Exercises...Ch. 8 - Use the following information for Brief Exercises...Ch. 8 - Calculating Price by Applying a Markup Percentage...Ch. 8 - Calculating a Target Cost Yuhu manufactures cell...Ch. 8 - Structuring a Make-or-Buy Problem Coed Scents, a...Ch. 8 - Structuring a Special-Order Problem Rabbit Foot...Ch. 8 - Segmented Income Statement Kraft Bowlen owns two...Ch. 8 - Use the following information for Brief Exercises...Ch. 8 - Use the following information for Brief Exercises...Ch. 8 - Structuring the Sell-or-Process-Further Decision...Ch. 8 - Use the following information for Brief Exercises...Ch. 8 - Use the following information for Brief Exercises...Ch. 8 - Calculating Price by Applying a Markup Percentage...Ch. 8 - Brief Exercise 8-35 Calculating a Target Cost...Ch. 8 - Model for Making Tactical Decisions The model for...Ch. 8 - Model for Making Tactical Decisions Austin Porter...Ch. 8 - Use the following information for Exercises 8-38...Ch. 8 - Use the following information for Exercises 8-38...Ch. 8 - Use the following information for Exercises 8-40...Ch. 8 - Use the following information for Exercises 8-40...Ch. 8 - Segmented Income Statement Knitline Inc. produces...Ch. 8 - Use the following information for Exercises 8-43...Ch. 8 - Use the following information for Exercises 8-43...Ch. 8 - Use the following information for Exercises 8-43...Ch. 8 - Sell at Split-Off or Process Further Bozo Inc....Ch. 8 - Use the following information for Exercises 8-47...Ch. 8 - Use the following information for Exercises 8-47...Ch. 8 - Calculating Price Using a Markup Percentage of...Ch. 8 - Target Costing H. Banks Company would like to...Ch. 8 - Keep or Buy, Sunk Costs Heather Alburty purchased...Ch. 8 - Use the following information for Exercises 8-52...Ch. 8 - Use the following information for Exercises 8-52...Ch. 8 - Rianne Company produces a light fixture with the...Ch. 8 - Segmented Income Statements, Product-Line Analysis...Ch. 8 - Segmented Income Statement, Management Decision...Ch. 8 - Make or Buy, Qualitative Considerations Hetrick...Ch. 8 - Sell or Process Further Zanda Drug Corporation...Ch. 8 - Keep or Drop AudioMart is a retailer of radios,...Ch. 8 - Accept or Reject a Special Order Steve Murningham,...Ch. 8 - Cost-Based Pricing Decision Jeremy Costa, owner of...Ch. 8 - Product Mix Decision, Single Constraint Sealing...Ch. 8 - Special-Order Decision, Qualitative Aspects Randy...Ch. 8 - Sell or Process Further, Basic Analysis Shenista...Ch. 8 - Product Mix Decision, Single Constraint Norton...Ch. 8 - Sell at Split-Off or Process Further Eunice...Ch. 8 - Differential Costing As pointed out earlier in...Ch. 8 - Make or Buy: Ethical Considerations Pamela...Ch. 8 - Keep or Drop a Division Jan Shumard, president and...

Additional Business Textbook Solutions

Find more solutions based on key concepts
Show solutions
How is the price elasticity of supply calculated? Explain what it measures.

Principles of Macroeconomics (MindTap Course List)

BOND VALUATION Callaghan Motors bonds have 10 years remaining to maturity. Interest is paid annually, they have...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What is Form 944?

PAYROLL ACCT.,2019 ED.(LL)-TEXT