LRF Prining provides printing services to many different corporate clients. Although LRF bids most jobs, some jobs, particularily new ones, are negotiated on a "cost plus" basis. Cost plus means that the buyer is willing to pay the actual cost plus a return (profit) on these costs to LRF.

Alice Reliey, controller for LRF, ha recently returned from a meeting where the president stated that he wanted her to find a way to charge more costs to any project that was on a "cost plus" basis. The president noted that the company needed more profits to meet its stated goals for the period. By charging more to the "cost plus" projects and therefore fewer costs to the to the jobs that were bid, the company should be able to increase its profit for the current year.

Alice knew why the president wanted to take this action. Rumors were that he was looking for a new position and if the company reported strong profits, the presidents opportunities would be enhanced. Alice also recognized that she could probably increase the cost of certain jobs by changing the basis used to assign the manufacturing overhead.

Questions:

1. Who are the Stakeholders in this situation?

2. Why does changing the manufacturing overhead cost increase profits? hint: Formula: Cost of a job= Direct materials + direct labor + manufacturing overhead

What are the ethical issues involved in this situation? Is what the president asking ethical?

3. What would you do if you were Alice?