In the third week of November, price on over 20 of Taylor Industries' direct material had

been reduced by 10 percent or more, and a new labor union contract had reduced several

categories of labor rates. A revision of standard costs in December would have resulted in lower

valuation of inventories, higher cost of goods sold due to inventory write-downs, and lower net

income for the year. Elgar believed the company was facing an operating loss and that the

assignment to evaluate the proposed purchased was designed primarily to keep her staff from

revising and lowering standard costs. She questioned the chief financial officer about the

assignment and reiterated the need for updating the standard costs but was again told to ignore

the update and concentrate on the proposed purchase. Elgar and her staff were relieved of the

assignment in early February. The purchase never materialized.

Required:

I.

Assess Jody Elgar's actions in this situation. Did this manager follow all ethical paths to

solving the problem?

II.

What are the consequences of falling to adjust the standard costs?