Asked by Marcos Urbina on May 11, 2024
Verified
People Carrier Systems Inc. (PCS) modifies vans that seat 15-20 people by adding additional safety features or wheelchair ramps. Most of its customers are cities and counties who use the vans to transport school children the elderly or the handicapped. The company has specialized in a no-frills approach emphasizing safety high quality and low cost. The company's president was quoted as saying "Let the other guys make a van pretty. We get people where they need to go-faster better and cheaper than anybody else."
The company obtains jobs by being the lowest bidder in a sealed bidding process. Recently the company was solicited by a top-10 college to submit a bid for a van to be used by its athletic team. Some specialized items were required such as the school's logo on the outside of the van and the vinyl seats had to be covered in school colors. The company submitted a bid and was very surprised to obtain it.
When the job was being prepared the job manager pointed out that several extra costs could result in this job showing a loss. The boss an ardent supporter of sports in general and this team in particular told the manager to just record the standard labor and overhead cost for this job. He says that they could use the preset rate for specialized jobs and increase the overhead application rate (used in submitting bids) by 5% for future routine jobs. "After all" he says "nobody else comes close to our price anyway. This could start a whole new line of business for us."
Required:
1. Who are the stakeholders in the decision to increase overhead for routine jobs?
2. Is the decision to subsidize special jobs by increasing the overhead rate on routine jobs ethical? Briefly explain.
Overhead Application Rate
A rate used to allocate indirect costs to products or job orders based on a predetermined formula.
Ethical Decision
A decision-making process that involves considering what is right and fair according to moral principles before taking action.
Stakeholders
Individuals, groups, or organizations that have an interest or concern in the operations and decisions of a business.
- Comprehend the moral considerations involved in cost accounting procedures.
Verified Answer
CS
Claudia SerranoMay 15, 2024
Final Answer :
1. The stakeholders include:
The employees and managers of PCS
Customers who purchase standard vans
Customers who purchase sports vans
Shareholders of PCS
2. The decision could be considered ethical if the company clearly understands that it is allowing the customers of the standard vans to cover some of the costs of the specialty ones. This might not be a bad decision especially if the specialty business is only a small fraction of the total business.
The company might be compromising its own best interests however if it arbitrarily damages relationships with existing customers in order to gain others. It seems undeniable that established customers are preferable to untested ones. While probably ethical the decision may not be a good one.
The employees and managers of PCS
Customers who purchase standard vans
Customers who purchase sports vans
Shareholders of PCS
2. The decision could be considered ethical if the company clearly understands that it is allowing the customers of the standard vans to cover some of the costs of the specialty ones. This might not be a bad decision especially if the specialty business is only a small fraction of the total business.
The company might be compromising its own best interests however if it arbitrarily damages relationships with existing customers in order to gain others. It seems undeniable that established customers are preferable to untested ones. While probably ethical the decision may not be a good one.
Learning Objectives
- Comprehend the moral considerations involved in cost accounting procedures.