C1. Les Pulaski is the supervisor of a new division of Innovation Corporation. H
ID: 2484144 • Letter: C
Question
C1. Les Pulaski is the supervisor of a new division of Innovation Corporation. Her annual bonus is based on the success of new products and is computed on the number of sales that exceed each new product’s projected breakeven point. In reviewing the computa- tions supporting her most recent bonus, Pulaski found that although an order for 7,500 units of a new product called R56 had been refused by a customer and returned to the company, the order had been included in the bonus calculations. She later discovered that the company’s accountant had labeled the return an overhead expense and had charged the entire cost of the returned order to the plantwide Overhead account. The result was that product R56 appeared to exceed breakeven by more than 5,000 units and Pulaski’s bonus from this product amounted to over $1,000. What actions should Pulaski take?Explanation / Answer
Answer: Les Pulaski should inform management of the error. She was provided a bonus based on her selling above the break-even point. Due to the accountant not recording the return in the proper record Les Pulaski was given a bonus when in fact she was not entitled to one. She should not receive a bonus based on an accounting error. Les Pulaski should not receive the over $800 bonus.
The reason it appears that Les Pulaski had sold more units than the break-even point is due to the there being an accounting error when the shipment of the product R6 was charged to another account. By recording the return of the merchandise to overhead instead of the sales records it makes it seem as if Les Pulaski in fact sold the product while in reality it was returned to the company but the return was put towards another account. This should have been recorded in the sales records as a return of the inventory. The error in recording is why the fixed costs of the company were increased and it was calculated that Les Pulaski sold more units than the break-even point when in reality she did not. Product R56 would not have reached or exceeded the breakeven point if the returned goods had been subtracted from total unit sales. The correct and ethical step for Les Pulaski would be to return the money and make management aware of the mistake.
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