Advanced Management Accounting Case:

In Early October, Priscilla Musso, general manager of the Specialty Products Division (SPD) of Consolidated Furniture Corp. (CFC), was studying the division's third quarter financial reports. Sales were running significantly below plan, and it became quite clear to Priscilla that SPD would need strong performance in the last quarter of the year in order to reach its annual profit target. Meeting budget was very important to Priscilla and her management team because they were included in CFC's lucrative executive bonus program, and they would lose all of their bonus opportunities if SPD did not achieve the profit targets.

To brainstorm for ideas, Priscilla called her management team together. At first the managers on the team expressed only discouragement. Everybody had been working hard, but the market was softening, and competitors were being very aggressive.

Then, after some delay with nobody else suggesting any options, Jonathan Robbins, SPDs manager of sales and marketing, suggested that the division could implement a new sales program to pull some sales that might ordinarily be made net year into the current year. Any customers who accepted delivery in the fourth quarter would not have to pay their invoice for six months. (Normally payment in the industry were to be made within 30 days.)

Priscillas first reaction was favorable; this program might, indeed, achieve the desired result. But she asked the members of her tea for their reactions.

Shirley Covey, manager of human resources noted that if this program was successful, it would probably cause SPDs employees to have to work overtime at the end of the year, and that was something they traditionally did not want during the holiday season. But Priscilla reminded Shirley that the employees would be paid time-and-a-half for all the overtime hours that they worked.

Priscilla asked Bill Bennett, SPDs controller, if this program would violate any accounting rules. Bill said there would be no problem recording the sales as long as the items were shipped and billed before December 31. The accounting would be consistent with GAAP. But Bill cautioned that this program was probably only providing a short-term, cosmetic profit improvement. While it might well make the current year look better, it would probably cause significantly lower sales to be recorded in the first quarter of next year. So next year the division would start in a deep hole. They would be scrambling all year to trying to dig themselves out of that hole, with no guarantees that they could pull it off. It was just postponing the problem. In addition, Bill reminded the team that this program would be very expensive. On top of the overtime expense that would have to be incurred in the production areas, the program would greatly increase SPDs accounts receivable. CFC was currently paying about 12% on its lines of credit, so this increase in working capital would be quite expensive for the corporation.

But Priscilla cut Bill short. She reminded him that CFC did not allocate interest expenses to SPD, so she was not particularly concerned about the corporations increased borrowing costs. She was more worried with her superiors negative reactions if she did not make this years profit plan than she was about their reactions to her allowing the receivables balance to increase in the early part of the year. And while she acknowledged that they might be creating a problem for next year, she suggested it would be best to worry about that problem when, and if, it became real.

With no other options on the table to solve the current years budget problem, the SPD managers decided, unanimously, to implement what they called the Sales Acceleration Program.

1. Identify the ethical dilemma--Identify and analyze primary and secondary issues related to this ethical dilemma and impact on various stakeholders.

2. Analyze the ethical alternatives--Analyze alternative resolutions to this ethical dilemma, the impact on various stakeholders, and the reasons specific stakeholders prefer each alternative.

3. Resolution of the ethical dilemma--Use an ethical framework to determine the most appropriate resolution of this ethical dilemma. Use one of the ethical frameworks.