Mrs. Yancy is a large family-style restaurant chain located throughout the Midwest in Amish communities. Currently, Mrs. Yancy makes its own biscuits and people love them. However, people are not eating out at restaurants as much as they did before the virus hit in 2020. Like many other restaurants, Mrs. Yancy is under increasing pressure to control its costs to help to counteract the lower number of diners. As part of its efforts to remain cost competitive, Mrs. Yancy is analyzing whether it should continue to make its own biscuits or to outsource part of the biscuit-making process by purchasing ready-made dough from a national supplier. Sean Murray works as a management accountant at the Mrs. Yancy restaurant group. Sean is asked by the controller to analyze whether the biscuits should continue to be made in-house from scratch or if the company should purchase ready-made dough from a national supplier. Seans mother-in-law, Blair Barker, is a salesperson for a national food manufacturer. Sean decides to get a bid from her before contacting any other suppliers. Blair has been struggling financially since the illness and subsequent death of Seans father-in-law last year and could use the sales commissions generated by this order. Sean emails Blair and asks her for a bid price for the ready-made dough. Blair sends him a price of $33.20 per case (a case of dough makes 12 dozen biscuits). Sean analyzes the cost of making the biscuits in-house. He arrives at the following schedule of cost for the dough to make 12 dozen biscuits:

Item: Cost per 12 dozen biscuits

Flour 9.00

Baking Soda 0.12

Baking Powder 0.38

Salt 0.24

Unsalted Butter 13.50

Buttermilk 6.00

Bakery labor 2.75

Fixed manufacturing Overhead 2.24

Cost per 12 dozen biscuit in house $34.23

Seans analysis shows that the restaurant should purchase the ready-made dough from the national supplier because the ready-made dough is less expensive than making the dough in-house. However, Sean has deliberately included all of the fixed costs in the cost calculation of making the biscuits in-house. Part of those fixed costs is unavoidable, but he does not distinguish between avoidable and unavoidable fixed costs in his analysis. The unavoidable portion of the fixed cost allocated to 12 dozen biscuits is $1.24. Sean submits his analysis to the controller. In his report, Sean recommends that Mrs. Yancy choose Blairs firm to supply the dough for its biscuits. Sean chooses to say nothing about his relationship to Blair, figuring no one will know since his mother-in-law has a different last name than he does. The controller accepts Seans analysis, and Mrs. Yancy enters a contract with Blairs firm for the ready-made dough.

Requirements

1. Using the IMA Statement of Ethical Professional Practice as an ethical framework (refer to Exhibit 1-7), answer the following questions:

a. What are the ethical issues in this situation and the ethical standards these issues violate. Justify your conclusion with the facts.

b. What are Seans responsibilities as a management accountant?

c. What are the consequences of Seans actions?

2. When making the decision to outsource the dough, what other qualitative factors should be considered?