Contemporary Interiors (CI) manufactureshigh-quality furniture in factories in North Carolina for sale to top American retailers. In 1995, CIpurchased a lumber operation in Indonesia, and shifted from using American hardwoods to Indonesian raminin its products. The ramin proved to be a cheaper alternative, and it was widely accepted by Americanconsumers. CI management credits the early adoption of Indonesian wood for its ability to keep its NorthCarolina factories open when so many competitors closed their doors. Recently, however, consumers havebecome increasingly concerned about the sustainability of tropical woods, including ramin. CI has seensales begin to fall, and the company was even singled out by an environmental group for boycott. It appearsthat a shift to more sustainable woods before year-end will be necessary, and more costly.In response to the looming increase in material costs, CEO Geoff Armstrong calls a meeting of upper management.The group generates the following ideas to address customer concerns and/or salvage companyprofits for the current year:a. Pay local officials in Indonesia to “certify” the ramin used by CI as sustainable. It is not certain whetherthe ramin would be sustainable or not. Put highly visible tags on each piece of furniture to inform consumersof the change.b. Make deep cuts in pricing through the end of the year to generate additional revenue.c. Record executive year-end bonus compensation accrued for the current year when it is paid in thenext year after the December fiscal year-end.d. Reject the change in materials. Counter the bad publicity with an aggressive ad campaign showingthe consumer products as “made in the USA,” since manufacturing takes place in North Carolina.e. Redesign upholstered furniture to replace ramin contained inside with less expensive recycledplastic. The change in materials would not affect the appearance or durability of the furniture. Thecompany would market the furniture as “sustainable.”f. Pressure current customers to take early delivery of goods before the end of the year so that morerevenue can be reported in this year’s financial statements.g. Begin purchasing sustainable North American hardwoods and sell the Indonesian lumber subsidiary.Initiate a “plant a tree” marketing program, by which the company will plant a tree for every piece offurniture sold. Material costs would increase 25%, and prices would be passed along to customers.h. Sell off production equipment prior to year-end. The sale would result in one-time gains that couldoffset the company’s lagging profits. The owned equipment could be replaced with leased equipmentat a lower cost in the current year.i. Recognize sales revenues on orders received but not shipped as of the end of the year. What should the management accountant do with regard to those items that are in violation of the ethicalstandards for management accountants?
Contemporary Interiors (CI) manufactures
high-quality furniture in factories in North Carolina for sale to top American retailers. In 1995, CI
purchased a lumber operation in Indonesia, and shifted from using American hardwoods to Indonesian ramin
in its products. The ramin proved to be a cheaper alternative, and it was widely accepted by American
consumers. CI management credits the early adoption of Indonesian wood for its ability to keep its North
Carolina factories open when so many competitors closed their doors. Recently, however, consumers have
become increasingly concerned about the sustainability of tropical woods, including ramin. CI has seen
sales begin to fall, and the company was even singled out by an environmental group for boycott. It appears
that a shift to more sustainable woods before year-end will be necessary, and more costly.
In response to the looming increase in material costs, CEO Geoff Armstrong calls a meeting of upper management.
The group generates the following ideas to address customer concerns and/or salvage company
profits for the current year:
a. Pay local officials in Indonesia to “certify” the ramin used by CI as sustainable. It is not certain whether
the ramin would be sustainable or not. Put highly visible tags on each piece of furniture to inform consumers
of the change.
b. Make deep cuts in pricing through the end of the year to generate additional revenue.
c. Record executive year-end bonus compensation accrued for the current year when it is paid in the
next year after the December fiscal year-end.
d. Reject the change in materials. Counter the bad publicity with an aggressive ad campaign showing
the consumer products as “made in the USA,” since manufacturing takes place in North Carolina.
e. Redesign upholstered furniture to replace ramin contained inside with less expensive recycled
plastic. The change in materials would not affect the appearance or durability of the furniture. The
company would market the furniture as “sustainable.”
f. Pressure current customers to take early delivery of goods before the end of the year so that more
revenue can be reported in this year’s financial statements.
g. Begin purchasing sustainable North American hardwoods and sell the Indonesian lumber subsidiary.
Initiate a “plant a tree” marketing program, by which the company will plant a tree for every piece of
furniture sold. Material costs would increase 25%, and prices would be passed along to customers.
h. Sell off production equipment prior to year-end. The sale would result in one-time gains that could
offset the company’s lagging profits. The owned equipment could be replaced with leased equipment
at a lower cost in the current year.
i. Recognize sales revenues on orders received but not shipped as of the end of the year.
What should the
standards for management accountants?
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