Fall 2017 - Managerial Accounting Case Apex Art has been requested to prepare a
ID: 2591623 • Letter: F
Question
Fall 2017 - Managerial Accounting Case Apex Art has been requested to prepare a bid on 500 pieces of framed artwork for a new hotel. Winning the bid would be a big boost for sales representative Jason Grant, who works entirely on commission. Sonja Gomes, the cost accountant for Apex, prepared the bid and calculated full product Costs of $121,000. Based on the company policy of pricing at 125% of full cost, Gomes gives Grant a figure of $151,200 to submit for the job Grant is very concerned. He tells Gomes that at that price, Apex has no chance of winning the job. He confides that he spent $500 of company funds to take the hotel's purchasing agent to a basketball playoff game where the purchasing agent disclosed that a bid of $145,000 would win the job. He hadn't planned to tell Gomes because he was confident that the bid she developed would be below that amount. Gomes reasons that the $500 he spent will be wasted if Apex doesn't capitalize on this valuable information. In any case, the company will still make money if it wins the bid at $145,000 because it is higher than the full cost of $121,000 Gomes suggests that if Grant is willing to use cheaper materials for the frame, he can achieve a bid of S145,000. The artwork has already been selected and cannot be changed, so the entire amount of the reduction in cost will need to come from framing materials BRIEFLY answer the following five questions 1) State and describe the issues, if any, which may potentially violate ethical principles 2) a. Whose interests could be jeopardized due to the potential unethical behavior that you identified in 1)? b. Provide reasons why these stakeholders' interests can be jeopardized 3) a. What is Gomes' rationale after Grant confides in her? b. Discuss the alternative courses of action that Gomes can take and the possible 4) What should Gomes do, and why? Elaborate 5) a. What can you conclude if Grant were to take Gomes' suggestions, and what could be the consequences? b. What could be the possible consequences for taking the suggestion that you A note regarding the bidding process: The hotel would announce that it is seeking bids from suppliers interested in providing the artwork. The hotel would specify their requirements and a deadline for submitting bids. All interested companies, such as Apex Art, would submit bids in sealed envelopes. After the deadline has passed, the hotel company would unseal the bids and, assuming that at least one supplier submitted a bid within their maximum price (this is the info that Grant obtained from the purchasing agent which is not normally known to the bidders) would award the job Generally, but not necessarily, the job is awarded to the company with the lowest bid.Explanation / Answer
1) Issues which may potentially violate the ethical principles in the given scenario would be:
The sales representative is in a direct communication with the cost accountant of the organisation and constantly tries to inluence her calculation of a fair price for bid as per the standards of the Apex Art.
Jason Grant unethically invites the concerned authority of the hotel and discuses confidential figures of the bid.
The concerned authority of the hotel leaks the highly confidential figures for the winning bid which should not be trusted upon by Apex Art.
Sonja Gomes agrees to reduced price suggested by Grant and suggests a quality cut on framing of Art.
2a) The interests of both the organisations; Apex Art and the hotel will be jeopardized for the issues stated in 1. Along with the organisations, the other interested parties to the bid would also suffer due to the breach of confidentiality as they wouldn't get chance of winning for playing fair and just.
2b) Apex court has a threat of losing reputation because of the reduction in quality of framing schemed upon by the associates. Also, there's a chance of the information being absolutely untrue resulting into the tender price to fall below the 125% mark of pricing policy, therefore, losing profit on an important deal.
The hotel if accepts the deal from Apex Art would lose on the quality of work provided to them which might spoil the reputation of the hotel also can affect the relationship of the hotel with Apex Art forever.
The outsiders to the bid are losing a chance to gain from the deal by playing fair.
3a) Gomes' rationale after Grant confides in her that she wants to save Apex Art from the loss of this deal by reducing the bidding amount and also the $500 spent by Grant from organisation's funds. She fine if the quality of frames are reduced as Art has already been finalised and cannot be changed for the reduced prices. Though she's thinking for the benefit of Apex Art but she's in a way promoting the wrong behaviour within the organisation by supporting Grant with his misdeed. Also, she's ignoring the possibility of the figure of $145000 to be incorrect and a possible scheme by the hotel.
3b) Alternatively, Gomes could have stuck to her original figure of $151200 or could have tried working out a possibility of reducing the prices by playing fair in the deal. She could have taken a stand against the malpractices followed by Grant and discouraged his act. Allowing a quality cut is certainly not suggesting a good image of her morality. Also, she could have taken the matter to the higher authorities and discussed the best possible outcome.
4) According to me, Gomes should not allow Grant to follow his wrong conduct and report the matter to the higher management. Acts like these can reflect very poorly on the reputation of the organisation and should not be taken casually. She should try and come up with the least possible figure of bid but with fair practices or should convince the management to charge a lower profit margin for this particular deal discussing it's unique circumstances. In anyway, supporting the misconduct reflects on one's own poor appreciation for morals and should be avoided under all cases.
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