LRF Printing performs printing services for many different corporate clients. Although LRF bids most jobs, some jobs, particularly new ones, are negotiated on a “cost-plus” basis. Cost-plus means that the buyer is willing to pay the actual cost plus a return (profit) on these costs to LRF.
Alice Reiley, controller for LRF, has recently returned from a meeting where LRF”s president stated that he wanted her to find a way to charge more costs to any project that was on a cost-plus basis. The president noted that the company needed more profits to meet its stated goals this period. By charging more costs to the cost-plus projects and therefore fewer costs to the jobs that were bid, the company should be able to increase its profit for the current year.
Alice knew why the president wanted to take this action. Rumors were that he was looking for a new position and if the company reported strong profits, the president”s opportunities would be enhanced. Alice also recognized that she could probably increase the cost of certain jobs by changing the basis used to allocate manufacturing overhead.
(a)Who are the stakeholders in this situation?
(b)What are the ethical issues in this situation?
(c)What would you do if you were Alice Reiley?