Question

Earnhart Manufacturing Company allows employees to purchase, at cost, manufacturing materials, such as metal and lumber, for personal use. To purchase materials for personal use, an employee must complete a materials requisition form, which must then be approved by the employee’s immediate supervisor. Gretchen MacCauley, an assistant cost accountant, charges the employee an amount based on Earnhart’s net purchase cost.

Gretchen MacCauley is in the process of replacing a deck on her home and has requisitioned lumber for personal use, which has been approved in accordance with company policy. In computing the cost of the lumber, Gretchen reviewed all the purchase invoices for the past year. She then used the lowest price to compute the amount due the company for the lumber.

-Discuss whether Gretchen behaved in an ethical manner.

-How would you handle this situation?

-Should there be a second signature or approval process for internal purchases?

Answer 1

1. Accordimg to me, Gretchen didn't behave in an ethical manner when it comes to him buying deck for his personal use as he didn't took the net purchase cost of that deck to the company rather he found out the previous record of the company and searched for the lowest price of the deck, so that he can show that he is taking the deck with lowest cost and the artificial profit will be increased whereas the actual valuation of profit will be decreased due to such act.

2. If i have to handle this situation, then i would tell Gretchen to write the actual net purchase cost of that particular deck to the company as the cost of his purchase from the company.

3.Yes, there should be a second signature or approval process for internal purchase, so that the senior supervisors cannot show unethical behaviour towards the company and if they try to do so, then the second signature signing authority, can stop them for doing so, so that the profits of the company show true and fair view of financial statements