Accounting

Apply: Percentage of Completion
Refer to the scenario located in the “Analyze, Think, Communicate” section 12-5 of Ch. 12, “Job-Order, Process, and Hybrid Costing Systems” of Fundamental Managerial Accounting Concepts. This scenario involves an altercation between Rene Alverez and Bill Sawyer and requires you to weigh in with calculations and comments on the matter.

Read the scenario in the textbook and complete the activity below.

Compute the equivalent cost per unit, assuming the ending inventory is considered to be 40 percent complete.

Compute the equivalent cost per unit, assuming the ending inventory is considered to be 60 percent complete.

Write a 350-word summary of your calculations and findings. Comment on Mr. Sawyer’s motives for establishing the percentage of completion at 60 percent rather than 40 percent.

Submit calculations and summary.

ANSWER

 

 

 

Apply Ethical Reasoning to Ethical Issues Within the Field of Study.

 

 

 

 

 

 

 

 

 

 

 

 

Beginning inventory 5500

Add production 94500

Available stock for sale 100000

Sales 90000

Balance 10000

Cost per unit 9.45

9. Inventory at 40% complete = 40000 x 9.45= 378,000

 

9. Inventory at 60% complete= 60000x 9.45=567,000

 

1. Comment on Mr. Sawyer’s motives for establishing the percentage of completion at 60 percent rather than 40 percent.

Mr. Sawyer’s incentive to for establishing the percentage of completion at 60 percent rather than 40 percent was to spruce up the financial figures as he was due for a promotion.  At 60% the inventory completed is worth 567000 whereas at 40% the inventory completed is worth 378,000 In order to make his case for plant manager he needed stronger figures. By giving a higher figure, Mr. Sayer is convinced will convince his bosses he has the figures in his performance to back up his case. When he makes plant manager, he would have Ms Aleverez a novice to take the fall for poor figures. Ms Aleverez would have to play along or take the fall. She has no grounds to accuse an employee who has been performing exemplarily.

 

Assuming that Ms. Alverez is a certified management accountant would be informing the chief accountant of her dispute with Mr. Sayer violate the confidentiality standards of ethical professional practice

Ms Alverez    wouldn’t be violating the confidentiality standards of ethical professional practice by informing the chief accountant of her dispute with Mr. Sayer. In actual sense, if she does not inform the accountant it would be unethical. If she keeps the information to herself, it would be unethical. The confidentiality of standards does not include covering up for frauds. They only relate to handling the financial information one is in contact with.  She cannot release the information to un- authorized persons. The accountant is authorized and therefore he qualifies.

 

Components of a fraud triangle.

A fraud triangle is used to determine the impetus behind a fraud. Fraud is an unscrupulous way to way where employees deceive the employer fro personal gain.

Fraud triangle opportunity

This refers to prexisting conditions that will support the execution of fraud. It is the only factor of frauds that a company can mitigate against fraud opportunities will include

Weak internal controls

These are internal processes and procedures designed to uphold the integrity of financial reporting and keeping of accounts (Bowen et al 2017). The lack of proper documentation and oversight will be a recipe for fraud opportunities.

Lack of tone at the top.

 

This is explained as the deliberate attempt by top levels executives to discourage fraud within an organisation. They board and top managers should always encourage honesty and accounting integrity (Schultz 1997). When the top levels managers abandon this noble duty, opportunities for fraud thrive

Poor accounting policies

This refers to the recording of accounting records.  Where due process in recording financial procedure s I s not followed, opportunities to perpetuate fraud thrive.

Incentive

This can also be referred to as pressure.  This is the mindset of a worker that perpetuates a fraud. Incentives to commit to fraud

Performance bonuses that are based on a financial measure

In most of the business, performance bonuses are measured against monetary figures such as revenues and income (Bowen et al 2017).. This often puts a lot of pressure on employees making them gravitate towards fraud.

Investor an analyst expectations

The pressure to outperform the expectations of analysts and the market as whole will encourage the perpetuation of a fraud.

Personal incentives

The need to earn more money especially to fund an expensive lifestyle, gambling or personal bills may encourage frauds

The fraud triangle rationalisation

 

 

This refers to the reasons that an individual will often put forward to justify the reasons for doing a fraud. Some of the reasons often used are

Ill treatment

An employee may be angry and vengeful towards a senior colleague. T hey may feel that getting by committing a fraud; they are getting back at them

Upper management is thriving at our expense

The preoccupation in corporate hierarchy is mainly brought about by poor tone at the top (Bowen et al 2017). The employee will gravitate towards committing fraud in order to be like top management

Lack of alternate solutions

An individual who is under pressure to deliver key performance indicators may feel under immense pressure and without fraud they may lose the job

1. e) Did Ms. Alverez violate any of the standards of ethical professional practice. If so, which ones?

 

Mrs Alverez violated the standards of ethical professional practice by not reporting a fraud. Having discovered a fraud, she was duty bound to inform the accountant of her suspicion and he would have initiated a fraud investigation. Confronting Sayer was not the intelligent choice in this case.

1. f) Discuss the components of the fraud triangle that affected Ms. Alverez’s behavior.

 

 

The components of fraud that affect MS Alverez are several. They are weak internal controls, poor accounting policies and lack of an alternative option. There is also lack of tone at the top leaving her highly exposed.

 

 

 

 

References

Bowden, J. L. H., Conduit, J., Hollebeek, L. D., Luoma-Aho, V., &Solem, B. A. (2017). Engagement   valence duality and spillover effects in online brand communities.Journal of Service Theory and Practice.

 

Schultz, D. and Kitchen, P., “Integrated Marketing Communications in US Advertising Agencies: An Exploratory Study,” Journal of Advertising Research, Vol. 37, no, 5, 1997, pp.7-17