John Jameson has been a valuable manager for the company for the past 11 years. His performance is evaluated annually based on how well his region performs, compared to the budget. As a regional manager, John and his subordinates, along with the regional plant supervisors, are eligible for bonuses if regional profits are between the budgeted profit amount and 115% of the budgeted profit amount. If annual profits are at or below the budgeted amount, no bonuses are given. If annual profits exceed 115% of budgeted profits, bonuses are capped at the 115% level.
Over the past year, John has underestimated regional revenues and overestimated expenses, improving the chances that the region would exceed budgeted profit for the period. He justified these practices by saying that the plant supervisors perform better when they know they are likely to get a year-end bonus.
Additionally, there had been an unforeseen economic downturn during the previous year, which meant that John could see that no bonuses would be given for that period. Since the region was not going to achieve its budget goals for the year anyway, John had the regional sales supervisors hold-off on submitting late-December sales contracts until after the beginning of the next fiscal year on January 1. That way, those contracts would be counted in the current year, improving the revenue totals along with the chances that bonuses would be paid. Also, John directed plant supervisors to purchase increased materials inventory during December of the previous year so that fewer purchase would be needed in the current year.
Prepare an analysis of this case that addresses the following points:
What are the ethical implications of John’s actions, as well as those of the plant managers and sales supervisors?
What impact (positive or negative) do these actions have on regional cost behaviors and their reliability?
How do the answers to the previous questions affect the organization’s master budget?
Are there actions that upper management could take to help align John’s personal goals with the goals of the organization?
If you were preparing the master budget, what would you do to account for John’s (and potentially other regional manager’s) actions?
(Sources – Management accounting: Theory, problems and solutions – Chapters 1 & 5; Accounting Ethics (2nd Edition)- Chapter 8; An Introduction to accounting and managerial finance: A merger of equals – Chapter 14; The Corporate Soap-Opera “As the Cash Turns”: Management of Working Capital and Potential External Financing Needs)
Compose a response in an MS Word (or similar application) document. Ensure you address all parts of the topic, and cite sources appropriately. Your answer should be at least 500 words in length. You are expected to perform at the reinforcement level as indicated on the rubric.
This assignment should be written in APA format. The APA Style Guide is available in Resources
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