In business, we should consider ethics. If certain values and rules are broken, we will not be able to proceed smoothly in business operations. In this case, it can be clearly seen that the management’s behavior is to manipulate profits by adding 20,000 units. The following is the calculation result of the number we will obtain with or without other units.
Sales are $2100,000 from 35,000 units of sales at $60 per unit
The cost of goods sold for 35,000 units is $10,500,000 for $30
Gross profit $ 1,050,000
Jim earning in this case is twenty percent of the profit profit = $210,000
Cost of the goods sold,
Units added are 20,000units at price of $40= $800,000
The remaining units 15,000 at a price of $30 = $450,000
Total cost (1250000)
Jim earning here will be less after we take 20% of the gross profit = $170,000
From the calculation above the additional of the 20, 000 units will have a negative effect on the performance of the organization. The payment to different entities in the organization will reduce. First, the profit to the shareholders will also reduce payment to the Jim and the income tax will reduce as well. From the figure above the payment to Jim Lester reduced by $40,000 and the gross profit decreased by $200,000 which shows that the net before tax income reduced by $160,000.
In the organization at the time, it will be hard to make the judgments which will affect the profitability of the organization negatively. In this case, the organizations will meet at the crossroad whether to accept the purchase of the inventory or not. For sure the purchase will cause a reduction in the earning of different stakeholders in the organization (Petryni, Matt). Given that all stakeholders in this organization aim to profit I bet it will not be right to make this purchase at this time of the year given the available stock can sustain the organization for the next six months.
Petryni, Matt. “Accounting Ethics And Integrity Standards.” Smallbusiness.Chron.Com, 2015, http://smallbusiness.chron.com/accounting-ethics-integrity-standards-24246.html.