Radhika Khrishna is the corporate accountant of Manchester Suits plc. Manchester Suits has 20 plants worldwide that manufacture basic suits for retail stores. Each plant uses a process-costing system. At the end of each month, each plant manager submits a production report and a production-cost report. The production report includes the plant manager’s estimate of the percentage of completion of the closing work in progress as to direct materials and conversion costs. Khrishna uses these estimates to calculate the equivalent units of work done in each plant and the cost per equivalent unit of work done for both direct materials and conversion costs in each month. Plants are ranked from 1 to 20, in terms of (a) Cost per equivalent unit of direct materials and (b) Cost per equivalent unit of conversion costs. Each month Khrishna publishes a report that she calls ‘Benchmarking for Efficiency Gains at Manchester Suits’. The top three ranked plants on each category receive a bonus and are written up as the best in their class in the company newsletter. 

Khrishna has been pleased with the success of her benchmarking programme. However, she has heard some disturbing news. She has received some unsigned letters stating that two plant managers have been manipulating their monthly estimates of percentage of completion in an attempt to become best in class.

Required
1. How and why might plant managers ‘manipulate’ their monthly estimates of percentage of completion?

2. Khrishna’s first reaction is to contact each plant accountant and discuss the problem raised by the unsigned letters. Is that a good idea?

3. Assume that the plant accountant’s primary reporting responsibility is to the plant manager and that each plant accountant receives the telephone call from Khrishna, mentioned in  requirement 2. What is the ethical responsibility of each plant accountant (a) To Radhika Khrishna and (b) to Manchester Suits in relation to the equivalent-unit information each plant provides for the ‘Benchmarking for Efficiency’ report?

4. How might Khrishna gain some insight into whether the equivalent unit figures provided by particular plants are being manipulated?