ina DeMarc, a partner in a large CPA firm, has been approached by Bruce Jonas, a manager, with the following recommendation for incentive bonuses for staff members. Jonas recommends that the firm continue to pay each staff member a straight annual salary (which has been traditionally the only payment made) plus a bonus based on the staff member’s ability to achieve a 10% reduction in time spent on each client’s work. The firm would also pay a 5% finder’s fee for any new client the staff member brings into the firm. Jonas believes this will motivate the staff to work more efficiently, to sell the firm to new clients, and to service more clients in any given time period. This should also generate more revenue for the firm. Required How would you advise Gina DeMarc? What ethical issues should she consider

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Chapter1: Financial Statements And Business Decisions
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Ethics Case

Gina DeMarc, a partner in a large CPA firm, has been approached by Bruce Jonas, a manager, with the following recommendation for incentive bonuses for staff members. Jonas recommends that the firm continue to pay each staff member a straight annual salary (which has been traditionally the only payment made) plus a bonus based on the staff member’s ability to achieve a 10% reduction in time spent on each client’s work. The firm would also pay a 5% finder’s fee for any new client the staff member brings into the firm.

Jonas believes this will motivate the staff to work more efficiently, to sell the firm to new clients, and to service more clients in any given time period. This should also generate more revenue for the firm.

Required

How would you advise Gina DeMarc? What ethical issues should she consider

**Special Order Financial Analysis**

The following analysis is designed to help determine whether a special order should be accepted and what the lowest unit sales price per unit should be to achieve a targeted before-tax profit.

**Increased Revenue Attributable to the Special Order**
- **Hint:** Calculate by multiplying the special unit sales price by the number of special sales.

**Increased Costs:**

1. **Direct Material:**
   - Formula: **Direct Material Formula provided free of charge: (($1,720,000 / 400,000) - $1.80).**

2. **Direct Labor**

3. **Variable Overhead**

4. **Selling Costs:**
   - **Commission:**

**Total Per Unit Variable Costs:**
- Sum of Direct Material (DM), Direct Labor (DL), Variable Overhead, and Commission.

**Units in Special Order:**

**Total Variable Costs:**

**Contribution Margin from Special Order:**

**Incremental Fixed Costs:**

**Increase in Net Income Before Taxes:**
   - **Check Figure:** Total should equal $267,600.

---

**Analysis Question:**
   - Should the special order be accepted? Provide a "Yes" or "No" answer and justify your reasoning.

---

### Meeting a Target Profit
1. **Adjusted Unit Variable Cost (with reduced commission)**
   - **Hint:** Subtract the commission cost from the Total Per Unit Variable Cost calculated above.

2. **Total Adjusted Variable Costs:**

3. **Total Increase in Fixed Costs:**

4. **Desired Net Income Before Income Taxes:**
   - **This figure is given: $39,600.**

5. **Total Cost (excluding commission) plus Desired Net Income Before Income Taxes:**

**Question:**
- What is the lowest unit sales price per unit that should be received to achieve a before-tax profit of $39,600 on the special order? Provide the lowest unit sales price along with supporting calculations.

---

This detailed calculation and analysis procedure ensures that important financial factors are considered when making decisions regarding special orders, ensuring alignment with profitability targets.
Transcribed Image Text:**Special Order Financial Analysis** The following analysis is designed to help determine whether a special order should be accepted and what the lowest unit sales price per unit should be to achieve a targeted before-tax profit. **Increased Revenue Attributable to the Special Order** - **Hint:** Calculate by multiplying the special unit sales price by the number of special sales. **Increased Costs:** 1. **Direct Material:** - Formula: **Direct Material Formula provided free of charge: (($1,720,000 / 400,000) - $1.80).** 2. **Direct Labor** 3. **Variable Overhead** 4. **Selling Costs:** - **Commission:** **Total Per Unit Variable Costs:** - Sum of Direct Material (DM), Direct Labor (DL), Variable Overhead, and Commission. **Units in Special Order:** **Total Variable Costs:** **Contribution Margin from Special Order:** **Incremental Fixed Costs:** **Increase in Net Income Before Taxes:** - **Check Figure:** Total should equal $267,600. --- **Analysis Question:** - Should the special order be accepted? Provide a "Yes" or "No" answer and justify your reasoning. --- ### Meeting a Target Profit 1. **Adjusted Unit Variable Cost (with reduced commission)** - **Hint:** Subtract the commission cost from the Total Per Unit Variable Cost calculated above. 2. **Total Adjusted Variable Costs:** 3. **Total Increase in Fixed Costs:** 4. **Desired Net Income Before Income Taxes:** - **This figure is given: $39,600.** 5. **Total Cost (excluding commission) plus Desired Net Income Before Income Taxes:** **Question:** - What is the lowest unit sales price per unit that should be received to achieve a before-tax profit of $39,600 on the special order? Provide the lowest unit sales price along with supporting calculations. --- This detailed calculation and analysis procedure ensures that important financial factors are considered when making decisions regarding special orders, ensuring alignment with profitability targets.
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