A2-55 Ethics involved with assigning costs to inventory (Learning Objectives 4 & 5) ETHICS Brandon is the production manager of a large manufacturing firm. He is worried about the prospect of bonuses for the upcoming year. The company has paid out bonuses for the past ten years, so Brandon has been counting on the bonus to help pay some debts he has accumulated over the year. In addition, Brandon and his wife are expecting their first baby in two months. Due to the unexpected downturn in sales, bonuses appear to be unlikely this year. Ryan is the accounting manager for the company. He and Brandon are good friends. Over lunch one day, Brandon confides in Ryan about his financial difficulties. He is stressed out over the bills and the baby on the way. He really needs that bonus. Ryan wants to help Brandon. Ryan has been with the company for many years and knows that fundamentally the company is strong. This year is just an unusual year. He thinks about ways that he can help Brandon. Brandon is a good employee, and the company does not want to lose him if he were to go to work for a competitor. Ryan thinks about how he can best help Brandon. He thinks about a few different options, including the following: Option #1: Ryan could increase income for the year by adding sales commission costs and advertising costs to the products. If he does this, the product cost will be higher. However, there is still a large inventory of units on hand. The units that are still in ending inventory will shield these costs from decreasing net income until the units are sold in a future year. Option #2: Ryan could quietly make Brandon a loan from the company to help him get back on his feet. The company does not have a policy prohibiting loans to employees, but neither does it have a policy of allowing such loans to employees. Ryan does not know what to do. Requirements Using the IMA Statement of Ethical Professional Practice as an ethical framework, answer the following questions: A. If Ryan were to increase income by adding sales commission costs and advertising costs to product costs as described in Option #1, what ethical principles would be violated? B. If Ryan were to make a company loan to Brandon (Option #2), what, if any, ethical principles would be violated? C. What do you think Ryan should do in this situation?
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