Profits Guaranteed

This was Joel Craig’s first visit to the controller’s office since being recruited for the senior accountant position in May. Because he had been directed to bring with him his preliminary report on year-end adjustments, Craig presumed he had done something wrong in preparing the report. That he had not was Craig’s first surprise. His second surprise was his boss’s request to reconsider one of the estimated expenses.

S & G Fasteners was a new company, specializing in plastic industrial fasteners. All products carry a generous long-term warranty against manufacturer’s defects. “Don’t you think four percent of sales is a little high for our warranty expense estimate?” his boss wondered. “After all, we’re new at this. We have little experience with product introductions. I just got off the phone with Blanchard (the company president). He thinks we’ll have trouble renewing our credit line with the profits we’re projecting. The pressure’s on.”

In your initial post, consider the scenario above and address the following:

  • Discuss whether Craig should follow his boss’s suggestion and lower the percentage.
  • Does revising the warranty expense estimate pose an ethical dilemma for Craig? Please explain your response.
  • What stakeholders would be affected if the organization follows the suggestion to lower the estimated warranty expense percentage? How would each group be hurt by this move?
You can leave a response, or trackback from your own site.

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