Question

Read the scenario below, and address the subsequent requirements.

You are analyzing cost data for your boss related to a special order your company is considering from a large customer in Singapore. The following data are applicable to the product being ordered:

• Normal unit sales price: $49.95
• Variable unit manufacturing costs: $10.50
• Variable unit selling and administrative costs: $18.25

The customer is requesting that the sales order be accepted on the following terms:

1. The unit sales price equals the unit contribution margin plus 10%
2. Freight will be paid by the customer
3. Your company will pay a $5,000 "facilitating payment "to a "friend of the customer" to get the product through customs more quickly.

Your boss has told you this is a very important customer. Furthermore, this order will help some employees earn a little extra holiday money with overtime.

Required:

Post your responses to the following questions:

1. What are the accounting and ethical issues involved in this scenario?
2. Would you recommend the sales order be accepted on the sales terms proposed? Why or why not?

Please help ASAP!

Answer 1

In framing the answer, it is assumed that units are 1000 of the order.

Thus total contribution would be:

Sales	49950
Variable Costs	10500
Variable Selling Exp	18250
Contribution	21200

Since customer is insisting to keep contribution at certain level, it wont be beneficial for the company because company wont earn same amount of $ 21200 as contribution in such situation when it has to pay $ 5000 extra for the custom release even though selling expenses would be elemenated and figures would be like this:

Sales	23320
Variable Costs	10500
Variable Selling Exp	0
Contribution	12820

Part 1

Accounting issues:

• this would pose accounting dillema to report sales at less than the price charges to other customers
• there would be reported loss if order accepted

Ethical issues:

• other customers would feel wrong as we would be charing much higher price to them
• employees might also be grunted because overtime charges may not compensate for the time spent with the family