Company C sells semiconductors that are used in handheld consumer electronics. The company has been extremely successful recording an increase in earnings each of the past four quarters. At the end of the current quarter, Larry Gomez, the company’s accountant, calculated the ending inventory for the semiconductors and was surprised to find that the quantity of the Z100 model had not changed during the quarter. Larry confirmed his calculation with the inventory control manager, who indicated that sales of the Z100 had stopped when the Z200 semiconductor was released early in the quarter. Larry found out that the Z200 semiconductor has the same applications as the Z100, but has more computing power and a lower cost than the Z100. Larry notified Sheena Snyder , the chief financial officer, about the semiconductors and recommended that the company apply the lower-of-cost-or-market method to the Z100 semiconductors in inventory. Later that day, Sheena called Larry telling him not to apply the lower-of-cost-or-market method to the Z100 inventory since this would cause the company not to meet its earnings goal for the current quarter.” Reluctantly, Larry followed Sheena’s instructions. Evaluate the decision not to apply the lower-of-cost or market method in the current quarter. 1. Who benefits from this decision? 2. Who is harmed by this decision? 3. Are Larry and Sheena acting in an ethical manner? Explain.
Company C sells semiconductors that are used in handheld consumer electronics. The company has been extremely successful recording an increase in earnings each of the past four quarters. At the end of the current quarter, Larry Gomez, the company’s accountant, calculated the ending inventory for the semiconductors and was surprised to find that the quantity of the Z100 model had not changed during the quarter. Larry confirmed his calculation with the inventory control manager, who indicated that sales of the Z100 had stopped when the Z200 semiconductor was released early in the quarter. Larry found out that the Z200 semiconductor has the same applications as the Z100, but has more computing power and a lower cost than the Z100. Larry notified Sheena Snyder , the chief financial officer, about the semiconductors and recommended that the company apply the lower-of-cost-or-market method to the Z100 semiconductors in inventory. Later that day, Sheena called Larry telling him not to apply the lower-of-cost-or-market method to the Z100 inventory since this would cause the company not to meet its earnings goal for the current quarter.” Reluctantly, Larry followed Sheena’s instructions.
Evaluate the decision not to apply the lower-of-cost or market method in the current quarter.
1. Who benefits from this decision?
2. Who is harmed by this decision?
3. Are Larry and Sheena acting in an ethical manner? Explain.
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