Please read the following Scenario: Elisa McRay was recently hired as cost analy

Question

Please read the following Scenario:

Elisa McRay was recently hired as cost analyst by Medlab Medical Supplies Inc. One of Elisa's first assignments was to perform a Net Present Value analysis for a new warehouse. Elisa performed the analysis and calculated a Present Value Index of 0.75 the plant manager, Mark, is very intent in purchasing the warehouse because he believes that more storage space is needed. Mark asks Elisa into his office and the following conversation takes place:

Mark: Elisa, you are new here aren't you?

Elisa: Yes, sir.

Mark: Well, Elisa, let me tell you something. I'm not at all pleased with the capital investment analysis that you performed in these new warehouse. I need that warehouse for my production. If I don't get it, where are am I going to place our output?

Elisa: Hopefully with the customer, sir.

Mark: Now don't get smart with me.

Elisa: No, really, I was being serious. My analysis does not support constructing a new warehouse. The numbers don't lie, the warehouse does not meet our investment return targets. In fact, it seems to me that purchasing a warehouse does not add much value to the business. We need to be producing product to satisfy customer orders, not to fill a warehouse.

Mark: Listen, you need to understand something. The headquarters people will not allow me to build the warehouse if the numbers don't add up. You know as well as I that many assumptions go into your Net Present Value Analysis. Why don't you relax some of your assumptions so that the financial savings will offset the cost?

Elisa: I'm willing to discus my assumptions with you. Maybe I overlooked something.

Mark: Good. Here is what I want you to do. I see in your analysis that you don't project greater sales as a result of the warehouse. It seems to me, if we can store more goods, then we will be able to manufacture more goods, which will mean we will have more to sell. Thus, logically a larger warehouse translate into more sales. If you incorporate this into your analysis, I think you will see that the numbers will workout. Why don't you work it through and come back with a new analysis. I am really counting on you on this one. Let's get off to a good start together and see if we can get this project accepted.

Please respond with detailed ~ETHICAL~ accounting advice that pertains to the question.

Explanation / Answer

Analysis of Elisa is ethical and resonable because Elisa conisder actual amount of sales. So we can say that Elisa did accurately present value analysis and on the basis of present value analysis of 0.75, Elisa suggested about rejecting of new warehouse plan.

But as per inoformation of the question, suggestion of Mark to Elisa is unethical because Mark told Elisa to include greater amount of sales in the present value analysis but as we know that in doing present value analysis we should include only actual data. Hence Mark suggestion is unethical and not resonable at all.

So I will suggest that analysis of Elisa is correct and Elisa should not violate ethical code of accounting profession by including suggestions of Mark because suggestions of Mark not ethical and resonable that is why Elisa should remain on own study & plan and try to make Mark understood about real figures. If Elisa make changes in the present value analysis then it will be a violation of ethical code of conduct.

Although it has been proved on the basis of present value analysis that purchasing of warehouse will not be worthful for the business that is why Mark should accept the proposal of Elisa.

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