Ethical issues (adapted from CMA exam). KJ Company manufactures furniture and ca

Question

Ethical issues (adapted from CMA exam). KJ Company manufactures furniture and car- riages for infants. The accounting staff is currently preparing next year’s budget. Kyle Lansing is new to the firm and is interested in learning how this process occurs. He has lunch with the sales manager and the production manager to discuss further the planning process. Over the course of lunch, Kyle discovers that the sales manager lowers sales projections 5 to 10 percent before submitting her figures, while the production manager increases cost estimates by 10 percent before submitting his figures. When Kyle asks about why this is done, the response is simply that everyone around here does it.

1. What do the sales and production managers hope to accomplish by their methods?

2. How might this backfire and work against them?

3. Are the actions of the sales and production managers unethical?

Explanation / Answer

(1) Sales manager lowers sales projection to project a higher-than-projected performance, since the gap between actual and projected sales narrows down if the projection is kept low.

Production manager overestimates costs to get a higher budget allocation to the production team.

(2) For the sales manager, painting a performance that's higher than reality may backfire by enhancing the expectation of senior management who will want more sales to get done. This expectation may result in an upward spiral which the sales manager will be unable to fulfill.

The production manager may face a situation where the senior management may be displeased with higher costs leading to lwoer profitability, and may ask him to curtail costs, perhaps using a job cut.

(3) Both are doing unethical job. They're intentionally misrepresenting facts and informations in order to improve their team performance, leading to lower variance. They've compromised with the Standard of Integrity and Professionalism.

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