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DOLLLILLIOLI Budgetary Slack Topic: Budgeting/Standard Setting Characters: Jennifer, a cost accountant working in a manufacturing division of a large corporation Ron, the budgeting and standards supervisor and Jennifer's superior in the accounting department Jennifer has been working on next year's budgets for some of the division's products. After Ron looked over her work, he called her into his office. Ron: "Jennifer, the budgets look pretty good, except that your estimates of materials costs seem too low." Jennifer: "I checked with production and engineering people, and they told me they expect materials costs to be down. They are trying some new procedures which are almost certain to reduce materials waste and damage significantly." Ron: "It's too soon to know how much materials costs will drop, or even if they will be lower. I want you to redo the budget with materials costs about where they have been for this year. Then if materials costs are lower next year, the division will beat the budget and look good. There may be some good bonuses next year." Jennifer: "Using the current materials quantities puts slack into the budget for next year." Ron: "Most managers try to get some slack into budgets. There's nothing wrong with that. Since the new procedures are still experimental, they haven't been reported to corporate headquarters. This is a perfect opportunity to get an easy budget. I know that's what the division controller expects and wants. Get the revisions to me as soon as you can." Meetings, which are not required.) 1) Who are the stakeholders? Name at least four. 2) Identify what the ethical issues are in this situation. State at least three. 3) Which of the ethical theories (utilitarian, rights or justice) should Jennifer use in teaching her decision? (This is an opinion question and you will need to explain your rationale. Insights about these theories are copied below). 4) What are the possible alternatives for Jennifer? State at least two. What Are the Ethics of the Alternatives? From a utilitarian" perspective (costs and benefits): 1. Which approach to preparing the budget benefits the division and its managers? 2. Which method of preparing the budget benefits the stockholders? 3. For each of the alternative actions, what are the costs axes benefits for Jennifer? 4. Which budget offers the greatest benefit overall? From a "rights perspective: 1. What rights do shareholders and corporate management have in this situation? 2. What rights and responsibilities do division managers have? 3. What responsibilities does Jennifer have? Does she have responsibilities which conflict with each other? From a "justice perspective (benefits and burdens): 1. Is it fair and reasonable that division managers receive bonuses based on performance in comparison to a budget? 2. How do the different alternative actions affect benefits and burdens for Jennifer