Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN: 9781305970663

Author: Don R. Hansen, Maryanne M. Mowen

Publisher: Cengage Learning

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Textbook Question

Chapter 1, Problem 4E

Consider the following thoughts of a manager at the end of the company’s third quarter:

If I can increase my reported profit by $2 million, the actual earnings per share will exceed analysts’ expectations, and stock prices will increase. The stock options that I am holding will become more valuable. The extra income will also make me eligible to receive a significant bonus. With a son headed to college, it would be good if I could cash in some of these options to help pay his expenses. However, my vice president of finance indicates that such an increase is unlikely. The projected profit for the fourth quarter will just about meet the expected earnings per share. There may be ways, though, that I can achieve the desired outcome. First, I can instruct all divisional managers that their preventive maintenance budgets are reduced by 25 percent for the fourth quarter. That should reduce maintenance expenses by approximately $1 million. Second, I can increase the estimated life of the existing equipment, producing a reduction of depreciation by another $500,000. Third, I can reduce the salary increases for those being promoted by 50 percent. And that should easily put us over the needed increase of $2 million.

Required:

Comment on the ethical content of the earnings management being considered by the manager. Is there an ethical dilemma? What is the right choice for the manager to make? Is there any way to redesign the accounting reporting system to discourage the type of behavior the manager is contemplating?

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Chapter 1, Problem 3E

Chapter 1, Problem 5E

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Chapter 1 Solutions

Cornerstones of Cost Management (Cornerstones Series)

Ch. 1 - What is cost management, and how does it differ...Ch. 1 - How do cost management and financial accounting...Ch. 1 - Identify and discuss the factors that affect the...Ch. 1 - What is a flexible manufacturing system?Ch. 1 - Prob. 5DQ Ch. 1 - What is the difference between a line position and...Ch. 1 - The controller should be a member of the top...Ch. 1 - Prob. 8DQ Ch. 1 - What is the role of cost management with respect...Ch. 1 - Prob. 10DQ

Ch. 1 - What is business ethics? Is it possible to teach...Ch. 1 - Firms with higher ethical standards will...Ch. 1 - Prob. 13DQ Ch. 1 - Prob. 14DQ Ch. 1 - What are the two parts to the CMA examination?...Ch. 1 - Classify each of the following actions as either...Ch. 1 - Hepworth Communications produces cell phones. One...Ch. 1 - Prob. 3E Ch. 1 - Consider the following thoughts of a manager at...Ch. 1 - Bill Christensen, the production manager, was...Ch. 1 - Each of the following scenarios requires the use...Ch. 1 - Prob. 7E Ch. 1 - Lily Shultz is a junior majoring in hotel and...Ch. 1 - John Biggs and Patty Jorgenson are both cost...Ch. 1 - Emily Henson, controller of an oil exploration...Ch. 1 - Prob. 11P Ch. 1 - Emery Manufacturing Company produces component...Ch. 1 - Prob. 13P

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