Presented below is a situation:

Gutierrez Company, a publicly held corporation, operates a regional chain of large drugstores. Each drugstore is operated by a general manager and a controller. The general manager is responsible for the day-to-day operations of the store, while the controller is responsible for the budget and other financial tasks. The general manager, Tracie Kappan, has been at Gutierrez Company for several years. Employee turnover is high at Gutierrez Company, just as it is in the retail industry in general.Kappan, just hired a new controller, Min Yang.

Yang was asked to prepare the master budget. Each retail location prepares its master budget once a year and then submits that budget to company headquarters for approval. Once approved by headquarters, the master budget is used to evaluate the store's performance. These performance evaluations directly affect the managers' bonuses, and whether additional company funds are invested in the location.

When Yang was almost done preparing the budget, Kappan instructed him to increase the amounts budgeted for labor and supplies by 20%. When asked why, Kappan reported that the budgetary cushion gives store management flexibility in running the store.For example, because company headquarters tightly controls operating funds and capital improvement funds, any extra money budgeted for labor and supplies can be used to replace store furnishings or to pay bonuses to help to retain good employees. She explains that the chance of getting extra funds from company headquarters is not good, this 'cushion' is usually the only opportunity to replace store dcor or to pay bonuses to key employees. Kappan also needs extra funds occasionally to make 'under the table' payments to employees as incentives to work extra hours or to keep them from leaving for a higher-paying job.Yang feels conflicted. He is eager to please Kappan, and he is wondering what he should do in this situation.

Assignment requirements:

As Min Yang, the newly hired Controller,write a memoto the appropriate person in Gutierrez company detailing:

1)The ethical issue(s) in the above situation.

2)Your responsibilities as a management accountant using the IMA Statement of Ethical Professional Practice as an ethical framework in your response.Imanet.org.

3)Analyze if the situation is different because Gutierrez is a publicly traded corporation versus being owned by one individual.

4)Which stakeholders will be harmed by the slack proposed in the master budget and how?

5)Discuss how the goals of budgeting (as given in the text book) are being violated.

6)What steps do you plan to take in this specific situation with the Master Budget prepared by you?

7)Discuss the actions requested of the recipient of this memo.

Directions

Assignment needs to:

a.Identify basic and relevant Managerial Accounting concepts and how they apply to the case.

b.Identify and refer to appropriate sections of the IMA Statement of Ethical Professional Practice and analyze how they apply to the case.

c.Clearly articulate the ethical reasoning as pertaining to the case.

d.Demonstrate an understanding of the master budget development process.

e.Present an organized and persuasive position supported by managerial accounting concepts and IMA ethical standards.

f.Have a minimum of 450 and a maximum of 600 words.