Ch 3 - EYK3-3 - p. 113

Ethics Case Metal Creations, Inc., is a custom manufacturer that uses a job order costing system. Currently, Metal Creations has 35% excess capacity in its factory. Charlie Rollins, the president, has instituted a campaign to obtain new customers. Rollins has offered the salespeople a bonus equal to 25% of the gross profit on work for new customers. The average gross profit rate has been 30% of the contract price.

Steve Starling, the sales manager for Metal Creations, wants to submit a proposal to a new customer that undercuts the usual pricing structure by 30%. As a result, this job would have no gross profit using the regular job order costing system. Instead, Starling suggest that the overhead rate applied to this job should be only 40% of the normal overhead rate, resulting in a gross profit of 28%. Starling suggest that the controller should handle this contract herself, and that no one else in the organization should know about it, especially the other salespeople, because the creative approach to overhead application might create problems.

Required

Does taking an order at a significantly reduced price create an ethical problem? Does altering the accounting for a particular order create an ethical problem? Does asking the controller to handle the contract and keep the accounting confidential to create an ethical problem?