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Revenues
Cost of goods sold
Order processing ($7,000 – 10% × $7,000)
Delivery ($1,750 – 20% × $1,750)
Rush orders
Sales calls
Total costs
Effect on operating income (loss)
$(21,840)
13,090
6,300
1,400
462
420
21,672
$ (168)
2. The drop in gross margin percentage indicates that Beth may be giving Martha Leone’s
excessive discounts, perhaps in excess of company guidelines. If CRS awards bonuses based on
sales rather than some measure of operating income, it may encourage sales representatives to
lower margins in order to increase sales. CRS may want to consider basing bonuses on customer
margin. The company may also want to enforce more stringent discounting guidelines.
3. Jason could suggest that Beth approach Martha Leone’s about reducing the number of different
orders that they place. If the orders could be placed less frequently, the company could reduce
both order processing and delivery costs. Beth could also investigate the causes of the rush orders
to see if they could be avoided.
Jason should not rework the numbers. Referring to “Standards of Ethical Conduct for
Management Accountants,” in Exhibit 1-7, Jason Ackerman should consider the request of Beth
Donaldson to be unethical for the following reasons.
Competence
• Prepare complete and clear reports and recommendations after appropriate analysis of relevant
and reliable information. Adjusting cost numbers violates the competence standard.
Integrity
• Refrain from either actively or passively subverting the attainment of the organization’s
legitimate and ethical objectives. Jason has the responsibility to act in the best interests of CRS.
• Communicate unfavorable as well as favorable information and professional judgments or
opinions. Jason needs to communicate the proper and accurate results of the analysis,
regardless of whether or not it pleases Beth Donaldson.
• Refrain from engaging in or supporting any activity that would discredit the profession.
Falsifying the analysis would discredit Jason and the profession.
Credibility
• Communicate information fairly and objectively. Jason needs to perform an objective analysis
of Martha Leone’s profitability and communicate the results fairly.
