Issues 1:
Rita Lane is the accountant for Outdoor Living, a manufacturer of outdoor furniture that is sold through specialty stores and Internet companies. Lane is responsible for reviewing the standard costs and making recommendations for adjustments to the controller. While reviewing the standards for the coming year, two ethical issues arise.
Ethical Issue 1
Lane has been approached by Casey Henderson, a former colleague who worked with Lane when they were both employed by a public accounting firm. Henderson has recently started his own firm, Henderson Benchmarking Associates, which collects and sells data on industry benchmarks. He offers to provide Lane with benchmarks for the outdoor furniture industry free of charge if she will provide him with the past three years of Outdoor Living's standard and actual costs. Henderson explains that this is how he obtains most of his firm's benchmarking data. Lane always has a difficult time with the standard-setting process and believes that the benchmark data would be very useful.
Requirements
1. Use the IMA's ethical guidelines (www.imanet.org/PDFs/Statement%20of%20Ethics_web.pdf) to identify the ethical dilemma.
2. Identify the relevant factors in the situation, and suggest what Lane should recommend to the controller.
Ethical Issue 2
Outdoor Living's management is starting a continuous improvement policy that requires a 10% reduction in standard costs each year for the next three years. Dan Jacobs, manufacturing foreman of the Teak furniture line, asks Lane to set loose standard costs this year before the continuous improvement policy is implemented. Jacobs argues that there is no other way to meet the tightening standards while maintaining the high quality of the Teak line.
Requirements
1. Use the IMA's ethical guidelines (www.imanet.org/PDFs/Statement%20of%20Ethics_web.pdf) to identify the ethical dilemma.
2. Identify the relevant factors, and suggest what Lane should recommend to the controller.
Issue 2:
Mary Tan is the controller for Duck Associates, a property management company in Portland, Oregon. Each year, Tan and payroll clerk Toby Stock meet with the external auditors about payroll accounting. This year, the auditors suggest that Tan consider outsourcing Duck Associates' payroll accounting to a company specializing in payroll processing services. This would allow Tan and her staff to focus on their primary responsibility: accounting for the properties under management. At present, payroll requires 1.5 employee positions-payroll clerk Toby Stock and a bookkeeper who spends half her time entering payroll data in the system.
Tan considers this suggestion, and she lists the following items relating to outsourcing payroll accounting:
a. The current payroll software that was purchased for $4,000 three years ago would not be needed if payroll processing were outsourced.
b. Duck Associates' bookkeeper would spend half her time preparing the weekly payroll input form that is given to the payroll processing service. She is paid $450 per week.
c. Duck Associates would no longer need payroll clerk Toby Stock, whose annual salary is $42,000.
d. The payroll processing service would charge $2,000 per month.
Requirements
1. Would outsourcing the payroll function increase or decrease Duck Associates' operating income?
2. Tan believes that outsourcing payroll would simplify her job, but she does not like the prospect of having to lay off Stock, who has become a close personal friend. She does not believe there is another position available for Stock at his current salary. Can you think of other factors that might support keeping Stock, rather than outsourcing payroll processing? How should each of the factors affect Tan's decision if she wants to do what is best for Duck Associates and act ethically?
Simply answer the questions with professionalism, facts, and acceptable data.