Collin Wilkes is the marketing manager at Darby Company. Last year, Collin recommended the company approve a capital investment project for the addition of a new product line. Collin’s recommendation included predicted cash inflows for five years from the sales of the new product line. Darby Company has been selling the new products for almost one year. The company has a policy of conducting annual post-audits on capital investments, and Collin is concerned about the one-year post-audit because sales in the first year have been lower than he estimated. However, sales have been increasing for the last couple of months, and Collin expects that by the end of the second year, actual sales will exceed his estimates for the first two years combined. Collin wants to shift some sales from the second year of the project into the first year. Doing so will make it appear that his cash flow predictions were accurate. With accurate estimates, he will be able to avoid a poor performance evaluation. Collin has discussed his plan with a couple of key sales representatives, urging them to report sales in the current month that will not be shipped until a later month. Collin has justified this course of action by explaining that there will be no effect on the annual financial statements because the project year does not coincide with the fiscal year––by the time the accounting year ends, the sales will have actually occurred. Required: Identify fundamental ethical issue and the affected parties. If you were a sales representative at Darby Company, explain your action and state your reason. If you were Collin’s manager and you discovered his plan, explain your respond toward Collin. Capital budgeting can be related to inflation. Discus Discuss the four alternative methods for evaluating capital budgeting projects? Explain the advantages and disadvantages of each method?
Collin Wilkes is the marketing manager at Darby Company. Last year, Collin recommended the company approve a capital investment project for the addition of a new product line. Collin’s recommendation included predicted
Collin wants to shift some sales from the second year of the project into the first year. Doing so will make it appear that his cash flow predictions were accurate. With accurate estimates, he will be able to avoid a poor performance evaluation. Collin has discussed his plan with a couple of key sales representatives, urging them to report sales in the current month that will not be shipped until a later month. Collin has justified this course of action by explaining that there will be no effect on the annual financial statements because the project year does not coincide with the fiscal year––by the time the accounting year ends, the sales will have actually occurred.
Required:
- Identify fundamental ethical issue and the affected parties.
- If you were a sales representative at Darby Company, explain your action and state your reason.
- If you were Collin’s manager and you discovered his plan, explain your respond toward Collin.
- Capital budgeting can be related to inflation. Discus
- Discuss the four alternative methods for evaluating capital budgeting projects? Explain the advantages and disadvantages of each method?
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