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Ethics In Managerial Accounting Essay

1258 words - 6 pages

Pat James, the purchasing agent for a local plant of the Oakton Electronics Division, was considering purchasing a component from a new supplier. The new component Pat is considering purchasing will result in a trading quality for a reduction in cost. The difference between the price of the possible new component, $1.90, and the standard purchase price of $2.10 will result in a favorable price variance and offset an unfavorable price variance from another component. Should Pat offset the unfavorable variance, his overall performance report will qualify him for the annual bonus. Pat would also stand to receive an impressive performance rating which would help ensure a higher paid position at ...view middle of the document...

The initial change will directly affect the company that has been supplying the part by a loss in sales revenues, and the new supplier will gain that business.
The initial problems should surface in delayed delivery of the new component to the local branch of Oakton Electronics Division around 3 to 6 months after the change in supplier The delayed deliveries will delay production, thus, initially affecting employees of the local plant. The change in production will affect the ability of the company to supply customers and reduce equity for the owners, top management, and investors. When the trend continues, the delays will likely prompt management to adjust expenses in terms of plant workers' direct labor hours and wages.
As there is not expected to be much difference regarding the number of defective units, the next problems will eventually come from customer dissatisfaction from the shorter lifespan of the product. Customers could, in turn, chose an alternative product and supplier. Oakton Electronics Division would suffer in terms of losing customers and tarnishing their reputation. In the case that the short lifespan of the component could eventually pose a safety risk, all stakeholders, including the community, will likely be affected. The purchasing agent will be responsible for correcting these problems by finding a higher quality component and would also have an unfavorable performance report when compared to that of his predecessor. In the case that the company investigates these potential problems and finds the purchasing agent, Pat James, acted in his own self-interest disregarding quality standards, he may be held accountable in accordance with company policy.
Furthermore, if Pat decides to use the subpar component, he will be tarnishing the reputation of Oakton Electronics Division. The finished good will have a stigma associated with being a product of poor quality. Even if the current purchasing agent corrects the problem in a timely manner, the damage to the reputation of the company and the product may not be easily corrected. The effects of customer outrage on the internet, more specifically social networking and online reviews, can be devastating. Twitter users target hashtags both positive and negative for companies and create a campaign to publically criticize the quality of products and service problems. These target hashtags lead to replies, retweets, and autobots creating a popular trending topic. Facebook users target company pages to share their disgust. The average consumer will “follow” or “like” a company if they receive incentives in the form of discounts, promotions, sweepstakes, etc. and express outrage for poor products and customer service. Pat’s decision could ultimately result in the decrease of brand value for his company.
Assuming Pat's main goal is to ensure an impressive overall performance report,...

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