Phillips Brothers Printers (PBP) provides printing services to a wide variety of customers. For most jobs, PBP submits a bid and uses the job cost system to accumulate costs, but bills the bid amount to the customers. They do have several customers who routinely have "out of the ordinary" jobs and PBP bills those on a cost-plus basis, with the customer paying the actual costs plus a predetermined profit percentage on the total cost. If you aren't familiar with cost-plus contracts, this definition from Investopedia may help.

Sally Phillips, controller for PBP, is approached by the company President who asks her to look for ways to charge more of the production costs to the cost-plus jobs. His logic is that since those customers will pay all the costs plus a profit, they can improve their overall profitability by shifting costs from bid jobs to cost-plus jobs.

Answer the following questions:

1. Is the President correct about the increase in overall company profits?
2. What classification of cost (direct materials, direct labor, or manufacturing overhead) is most likely to be able to be shifted from bid to cost-plus jobs? Why?
3. Is what the President proposes ethical? Why or why not?
4. What would you do if you were Sally? Why?
5. If Sally does go along with this proposal, are there risks to the company? What are they?