Reference no: EM132671306

Organizational Impact of Accounting Information

• You have just begun an internship in the final semester of your MBA program. The company you have chosen is a distributor of sterilized surgical instruments for advanced dental procedures. To grow the sales, DenTech is considering paying a commission to its sales force. The company comptroller, George Stewart, asks you to compute: (1.) the new breakeven sales figure, and (2.) the operating profit if sales increase by 15% under the proposed commission plan. He believes you can handle this task because you referenced Cost-Volume-Profit Analysis in your MBA accounting class during the interview process for the position.

• You spend the next day collecting information from the accounting records, performing the analysis, and writing a memo explaining your conclusions and recommendations. DenTech's President is quite pleased with your work when it is passed on to her. Your report concludes that the new sales commission program will lead to a significant increase in operating income and only a small increase in the breakeven sales point.

• The following week, as you become more familiar with the company's operations, it becomes apparent that you have made an error in the CVP analysis. You had overlooked the sales personnel's $2,500 per month salary portion of their compensation, and did not include this fixed marketing expense in the computations. What do you do? If you tell Stewart about the mistake, he will most certainly tell the president. You realize that this miscalculation may seriously damage your chances of an offer of permanent employment after the internship.

Problem a. How would your error affect the breakeven sales and operating income under the proposed commission plan? Is the mistake large enough to cause the president to reject the commission proposal?

Problem b. Consider your ethical responsibilities. Is there a difference between (a) initially making the error and (b) subsequently failing to inform George Stewart?

Problem c. Suppose you tell Stewart of the error in your analysis. Why might the consequences not be as bad as you fear? Should Stewart take any responsibility for your error? What could Stewart have done differently to prevent the error?

Problem d. After considering all of the relevant factors, should you inform Stewart or simply keep quiet and hope for the best?