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Assignment 1

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Mediterranean School of Business

 Financial

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Financial

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Managerial

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Financial

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Managerial

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Managerial
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Financial
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Managerial
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Financial

Managerial

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Mediterranean School of Business

 SG&A

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SG&A

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SG&A

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Product

SG&A

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AZ SG&A
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SG&A
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SG&A
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Product
Product

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• A review of the accounting records of Bubble Manufacturing indicated that
the company incurred the following payroll costs (salaries) during the

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month of August.
• 1. Salary of the company president—$32,000.

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2. Salary of the vice president of manufacturing —$16,000.

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3. Salary of the chief financial officer—$18,800.

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4. Salary of the marketing department manager —$15,600.
5. Salaries of middle managers (department heads, production supervisors)
in manufacturing plant—$196,000.

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6. Wages of production workers—$938,000.
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7. Salaries of administrative secretaries—$112,000.
8. Salaries of engineers and other personnel responsible for maintaining
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production equipment— $178,000.
9. Commissions paid to sales staff—$252,000.
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• Required

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a. What amount of payroll cost (in total) would be classified as selling,

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general, and administrative expense?

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• b. Assuming that Rayford manufactured 4,000 units of product and sold

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3,600 of them during the month of August, determine the amount of
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payroll cost that would be included in the cost of goods sold.
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• a. What amount of payroll cost would be classified as SG&A expense?

• 1. Salary of the company president—$32,000. ✓

2. Salary of the vice president of manufacturing —$16,000. X

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3. Salary of the chief financial officer—$18,800. ✓

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4. Salary of the marketing department manager —$15,600. ✓

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5. Salaries of middle managers in manufacturing plant—$196,000. X

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6. Wages of production workers—$938,000.
X

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7. Salaries of administrative secretaries—$112,000.
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8. Salaries of engineers and other personnel responsible for maintaining
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production equipment— $178,000.
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9. Commissions paid to sales staff—$252,000.
✓
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b. Determine the amount of payroll cost that would be included in the COGS.
(4,000 units produced; 3,600 units sold)

X• 1. Salary of the company president—$32,000.

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✓

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2. Salary of the vice president of manufacturing —$16,000.
X 3. Salary of the chief financial officer—$18,800.

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X 4. Salary of the marketing department manager —$15,600.

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✓ 5. Salaries of middle managers in manufacturing plant—$196,000.

✓ 6. Wages of production workers—$938,000.

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X 7. Salaries of administrative secretaries—$112,000.
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✓ 8. Salaries of engineers and other personnel responsible for
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maintaining production equipment— $178,000.

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X 9. Commissions paid to sales staff—$252,000.

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Bonnie Morgen: First Day on the Job and

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Facing an Ethical Dilemma

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Mediterranean School of Business

Case description

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• Bonnie Morgen was hired as controller of a business unit that
produces and sells industrial components.

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• Bonnie will work directly for Bill, the division general manager (GM),

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but she will still have responsibility to the CFO, Ed.
• Both the GM and CFO have input in the controller’s performance

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evaluation for both the annual review and pay raises
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• Bonnie is replacing Jerry and she heard that Jerry didn’t have a lot of
formal accounting training.
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Mediterranean School of Business

1) Description of the ethical dilemma
• The controller, Bonnie, must decide what to do when her boss
misrepresents orders as sales to meet sales budgets and thus

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overstates revenues by 1.5 million dollars.
• Recording those orders as sales is a violation of revenue recognition

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rules

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• Booking those orders resulted in a material overstatement of last

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month’s income of $121,171 and an overstatement of revenue by
$1,514,643.

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“Should Bonnie report the accounting manipulation or not?”
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Mediterranean School of Business

2) Influence and contribution of the organizational culture to the
ethical dilemma

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The relationship between organizational culture and ethics is that the

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organizational culture guides employees when faced with ethical
dilemmas. If the organizational culture counters what they are required

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to do ethically, employees may put the organization in risk by not acting

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ethically.

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In this case, we know that there is some pressure from the GM to meet
the budget and that the bonuses are related to the performance.

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“The criteria for bonuses and promotions puts too much emphasis on
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meeting the budget. That can make it hard to stand up against any
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“creative accounting.” “
In addition, the job description for some positions is not that well defined
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and may lead to hiring unqualified employees.

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Good to know!

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Creative accounting: the exploitation of loopholes in financial regulation

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in order to gain advantage or present figures in a misleadingly

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favourable light.

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Loophole: an ambiguity or inadequacy in the law or a set of rules

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3) The standard(s) that would be violated if Bonnie ignored the
ethical dilemma

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I. COMPETENCE

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1. Maintain an appropriate level of professional leadership and expertise

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by enhancing knowledge and skills.
2. Perform professional duties in accordance with relevant laws,

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regulations, and technical standards.
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3. Provide decision support information and recommendations that are
accurate, clear, concise, and timely. Recognize and help manage risk.
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Mediterranean School of Business

3) The standard(s) that would be violated if Bonnie ignored the
ethical dilemma

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II. CONFIDENTIALITY

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1. Keep information confidential except when disclosure is authorized or

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legally required.
2. Inform all relevant parties regarding appropriate use of confidential

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information. Monitor to ensure compliance.
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3. Refrain from using confidential information for unethical or illegal
advantage.
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This standard is not related to the case study

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3) The standard(s) that would be violated if Bonnie ignored the
ethical dilemma

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III. INTEGRITY

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1. Mitigate actual conflicts of interest. Regularly communicate with

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business associates to avoid apparent conflicts of interest. Advise all
parties of any potential conflicts of interest.

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2. Refrain from engaging in any conduct that would prejudice carrying
out duties ethically.
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3. Abstain from engaging in or supporting any activity that might discredit
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the profession.
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4. Contribute to a positive ethical culture and place integrity of the

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profession above personal interests.

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3) The standard(s) that would be violated if Bonnie ignored the
ethical dilemma

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IV. CREDIBILITY

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1. Communicate information fairly and objectively.

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2. Provide all relevant information that could reasonably be expected to
influence an intended user’s understanding of the reports, analyses, or

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recommendations.
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3. Report any delays or deficiencies in information, timeliness,
processing, or internal controls in conformance with organization policy
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and/or applicable law.

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4. Communicate professional limitations or other constraints that would

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preclude responsible judgment or successful performance of an activity.

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4) Identify and describe alternative course(s) of action for Bonnie

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Alternative courses of action for Bonnie could include reporting

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the unethical behavior to her superiors or a designated ethics

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officer within the company, seeking guidance from colleagues or

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professional resources, such as the IMA Statement of Ethical
Professional Practice, or attempting to address the issue through

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the company's existing channels for reporting unethical behavior.
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Mediterranean School of Business

5) Recommend a course of action for Bonnie, a member of IMA
1/Understand the situation's facts and conditions.

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2/Determine all parties and their respective interests.

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3/Examine the applicable ethical concepts and norms, such as honesty, objectivity,

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confidentiality, and professional competence.

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4/Consider the probable repercussions of each decision.
5/Seek advice from peers or professional resources, such as the IMA Statement of

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Ethical Professional Practice.
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6/Make a judgment based on the facts obtained and ethical values.
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7/Inform relevant stakeholders of the choice and explanation.
8/Keep an eye on the situation and be ready to change your mind if required.
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9/Report the unethical activity to her superiors or a company-designated ethics officer,

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and document the measures taken.

Mediterranean School of Business