In business world, it is normal to experience peak and recession periods due to various causes of change in market demand. Businesses have set ethical standards to prevent managers from making wrong decisions during off-peaks; they are required to act credibly and with integrity. The Brixton Surgical Devices case cites a collaboration between the chief operating officer and chief financial officer to ensure they earn preferred bonuses following the realization that the overall turnover by their company would not see them receive their commonly received amounts. They escalate the production of stock items in the fourth quarter, relying on their vast overhead from their high-priced production equipment to bury more overhead in inventory subject to high production.
Robin Smith and Ed Walters acted unethical by deciding to jack up stock items' production in the fourth quarter, relying on their ton of overhead to bury in inventory to reflect lower unit costs and higher sales. The two managers did not act credibly by failing to communicate to other shareholders the fall in annual target earning. According to businesses’ ethical standards, managers are required to act with integrity while disclosing information and conform to company’s policy. The two individuals made the decision for selfish gains of increasing their bonus. They should have disclosed true revenues to other shareholders so as to make ethical decision as a team.
Delegate your assignment to our experts and they will do the rest.
According to Jiambalvo (2015), the net effect of their action will involve exhibiting the company as highly profitable due to lower unit costs and higher sales margins portrayed in the cash flows for the fourth quarter. The two individuals know the company has high chances to fail in achieving the aggressive annual earnings target demanded by the board of directors. The manipulation accompanied by the duping measure will adversely impact shareholder value in the long run. During the last quarter, the shareholders will realize an increase in revenue but on the first quarter of the next year, they will realize decrease in revenues. In conclusion, as stated by Jiambalvo (2016), upholding ethics in decision making is always the right thing to do and therefore, managers should be guided by ethics to make the right decisions.
Reference
Jiambalvo, J. (2015). Managerial Accounting . Wiley; 6th edition
