Ethical Question

Ethical Decision Making
Stacy Lynn, Inc. (SLI) is a manufacturer of rice cookers. The rice cookers sell for $45
per unit; the sales were 3,600 units in the current year, 2009. SLI has 400 units
available for sale at the end of 2009 and is projecting sales of 4,400 units in 2010. SLI is
planning the same production level for 2010 as in 2009, 4,000 units. The variable
manufacturing costs for SLI are $16 and the variable selling costs are only $.50 per unit.
The fixed manufacturing costs are $100,000 per year and the fixed selling costs are
only $500 per year. Assume that beginning inventory was -0- for 2009.
Stacy Ann Lynn, the great grand-daughter of the company’s founder is the current
CEO/President of the company, which is still a family owned business. The previous
several years have been especially difficult due to price-pressure from Chinese imports.
At the moment, all that Stacy believes she can do is to try to keep the company running
until the economy improves. But, the company needs an immediate infusion of cash.
So, she has decided to ask her bank for a large line of credit to maintain operating
viability for the foreseeable future.
Based on the information provided in the narrative above, and the financial
statements below, post a response to each Part below:
a) If Patty wants to show the bank the maximum profit over the previous 2-year
period, which costing method should she present?
b) However, the bank requires that all financial statements conform to Generally
Accepted Accounting Principles (GAAP). Based on that requirement, which
costing method should she present?
c) The bank has delivered a memo in preparation for the meeting to negotiate the
Credit Line; the memo states that they will expect a significant Net Income.
Based on your responses to Parts a and b, what are the legal and ethical issues
facing Stacy Lynn?
Additional Financial Information for SLI, 2009 &2010:
You must post your initial thread to the DB before 11:59 PM (ET) on Saturday of the
unit. Then, you must respond to at least 2 of your colleagues by the end of the unit on
Tuesday. These 3 separate posts must be made on 3 different days.
Also, if the instructor asks a follow-up question to your post, your reply to that question
will also qualify to satisfy the requirements to make 2 response posts.
Income Statements: 2010 Full Costing Variable Costing
Sales (4,400 x 45)
Cost of Goods Sold: $198,000 $198,000
Beginning Inventory $16,400 $6,400
Cost of Goods Manufactured $164,000 $64,000
Goods Available for Sale $180,400 $70,400
Ending Inventory $0 $0
Cost of Goods Sold $180,400 $70,400
Less: Variable Selling &Admin Expenses $2,200
Gross Margin $17,600
Contribution Margin $125,400
Less: Fixed Mfg Costs $100,000
Less: Selling &Administrative Costs
Variable $2,200
Fixed $500 $2,700 $500 $100,500
Operating Income $14,900 $24,900


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