Income inflation is an ethical concern that is on the rise in the United States and the world for most corporate institution managers. Indeed, this concern is well elucidated in this article. Gail, Robert's senior at the auto company, shows how managers can be unethical by choosing a costing methodology that favors her interests. In this way, the progress of the company and its employees' job security is at stake. It reveals how one person holds the company hostage by influencing her colleagues to make approvals of a financially unsound decision. By relying on the company's absorption costing methodology, the manufacture of SUVs went high irrespective of the low sales. This could then lead to the company overstating income internally while making losses due to high fuel prices and difficult economic times.
Gail lacks a sense of integrity. There is a conflict of interest that plays out since she is in for personal interests while Robert, her junior who has CMA and CPA designations, seems ethical. Robert had even sworn to uphold the CMA and CPA codes of conduct as his own. However, he faces a huddle dealing with Gail's dishonesty and lack of integrity as she lures the other two senior managers into agreeing to her methodology. Robert remembers his professor's lectures on switching from variable to absorption costing can do to the figures. The inflated figures could be an on the icing cake coating the low sale values due to the accumulating inventory from the relative regression of sales. Gail's manipulation through verbal arguments and intention to deceive Robert for his relative inexperience in the auto industry demonstrates a lack of integrity as per the Institute of Management Accountants' code.
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Credibility is key for professional conduct. Gail lacks credibility from Robert's assessment. She fails to communicate properly. Her arguments are not fair or objective for the company and her colleagues. Gail favors adopting the absorption costing method that could not trigger doubts from the auditors externally while the values were not the true reflection from the low SUV sales, it demonstrates how there is a gap from her projections. The code demands that managers communicate properly and completely disclose projections for in-depth analysis. She covers up limitations that affect responsible judgments from other managers.
If I was placed in Robert Gonzalez’s position, I could bring to the table variable and absorption costing methodologies and demonstrate each of them to all managers. Robert was a skilled accountant with a good foundation of ethics and good judgment. The type of costing method a company uses is dependent on the business model. Variable direct and fixed direct costs are negated from the revenue to get the gross profit for the absorption costing method. While using the absorption costing technique, the COGS will be increased, translating to a decrease in the manufactured gross profit per unit. The concept then means that the company will have an increased breakeven price on manufacturing for every unit. Cumulatively, customers will have to buy increased prices for the purchase of units. Due to the difficult economic times and the relatively lower prices of electric vehicles that Gail wrongly advises by playing down the competition as a fad, sales could go down further.
On the other hand, variable costing could lead to a much lower breakeven price using COGS per unit. The cost per unit will also reduce and help improve sales during tough economic times. By contrasting these two costing methods, I could propose variable costing for higher gross profits. The meeting could be a nice portfolio to shed light on other managers who could then support Robert. However, for Gail, the conflict of interest will play out and lead to a spell of difficult working relations with Robert. One of them will likely get dismissed from the firm. Robert looks like a professional accountant who will garner support from the other two managers from his convincing demonstration.
