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Problem 7-1 Decision Making and Ethics

Problem 7-1 Decision Making and Ethics
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ACCOUNTING

MT425 / MT 425
Managerial Finance and Accounting
Kaplan University (KU Campus)

James Jiambalvo
Managerial Accounting, 4e
Hoboken, NJ: John Wiley & Sons.

Unit 6: Management Accounting in a Competitive Business Environment

Chapter 7 Problem 7-1 Decision Making and Ethics [LO 1, Ethics] Joan Paxton, VP of marketing for Supertone Recording Equipment, has developed a marketing plan for presentation to the company’s president. The
plan calls for television ads, something the company has never used. As part of her presentation, she will indicate the impact of the TV ads on company profit as follows:

Incremental sales from increased exposure $9,000,000
Less:
Incremental cost of goods sold $3,900,000
Cost of TV ads 2,500,000 6,400,000
Incremental profit $2,600,000

While Joan is quite confident in the cost of the ads and the incremental cost of goods sold if sales are $9,000,000, she is quite uncertain about the sales increase. In fact, she believes that her estimate is on the high side. However, she also believes that if she puts in a more conservative estimate, such as $7,000,000, the president will not go along with the TV ads even though they still will generate substantial profits at $7,000,000 of incremental sales.

Required
Is it unethical of Joan to bias her estimate of incremental sales on the high side, given that she believes the ultimate outcome is in the best interest of the company?

 

FILE: MS WORD

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