Ethical Issues:

"Josey," Jordan asked with a puzzled look on his face. "I don't understand these regression results for our mixed costs.

" "What seems to be the problem?" Josey asked, looking over his shoulder at his spreadsheets.

"Well, I used direct labor hours, like you said, and it seems to be a great driver for cleaning supplies and a pretty good driver for parts and repairs, but it isn't a good driver for our utilities bill."

"What's wrong with that?"

"Well, I would have expected our utility bill to be pretty constant. I mean, the lights are pretty much always on, the water usage is pretty constant, and none of our machines are that energy intensive. So why is it jumping around so much?"

"Well," Josey said sitting down in a chair. "The utility bill itself is pretty constant. But I use the utility expense account as kind of a 'miscellaneous expense.' Any time I have to buy miscellaneous items for the office, or when we have an office party for a holiday or celebration, I just debit utilities expense."

"Why?" Jordan asked.

"Well, for one thing it's easier. For another, no one really looks at utilities expense, so I don't have to spend a lot of time explaining those costs."

"Doesn't that mess up our numbers and our budgets?"

"Not materially. Because the cash flows are all accounted for and since everything balances, I just decided that it wasn't worth my time, not with everything else I have to do with only you to help me."

1. What concerns do you have about Josey's response to Jordan's questions?

2. What are the consequences of recording these expenses inappropriately? Do you really think it makes any difference to the company?

3. What consequences might Jordan face if he continues to argue with his new boss?

4. What options does Jordan have for resolving this issue? Which of your options do you think he will choose?