Hannah Gilpin is the controller ofBlakemore Auto Glass, a division of Eastern Glass and Window. Blakemore replaces and installs windshields.Her division has been under pressure to improve its divisional operating income. Currently,divisions of Eastern Glass are allocated corporate overhead based on cost of goods sold. Jake Myers,the president of the division, has asked Gilpin to reclassify $50,000 of installation labor, which is includedin cost of goods sold, as administrative labor, which is not. Doing so will save the division $20,000 in allocatedcorporate overhead. The labor costs in question involve installation labor provided by traineeemployees. Myers argues, “the trainees are not as efficient as regular employees so this is unfairlyinflating our cost of goods sold. This is really a cost of training (administrative labor) not part of cost ofgoods sold.” Gilpin does not see a reason for reclassification of the costs, other than to avoid overheadallocation costs. Describe Gilpin’s ethical dilemma.
Hannah Gilpin is the controller of
Blakemore Auto Glass, a division of Eastern Glass and Window. Blakemore replaces and installs windshields.
Her division has been under pressure to improve its divisional operating income. Currently,
divisions of Eastern Glass are allocated corporate
the president of the division, has asked Gilpin to reclassify $50,000 of installation labor, which is included
in cost of goods sold, as administrative labor, which is not. Doing so will save the division $20,000 in allocated
corporate overhead. The labor costs in question involve installation labor provided by trainee
employees. Myers argues, “the trainees are not as efficient as regular employees so this is unfairly
inflating our cost of goods sold. This is really a cost of training (administrative labor) not part of cost of
goods sold.” Gilpin does not see a reason for reclassification of the costs, other than to avoid overhead
allocation costs. Describe Gilpin’s ethical dilemma.
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