Question

ACCOUNTING ETHICS:

In your role as an internal auditor for a car manufacturer, you discovered that your employer can produce a car engine that will get 8 more miles per gallon than the existing engine. However, the cost of producing this car engine would be an additional $3,000 per car. Assume that a typical driver drives a car for 5 years and 200,000 miles. Also, assume that the cost of a gallon of gas is $5 per gallon and a typical car gets 24 miles per gallon. The company is wondering if it is ethical to not produce this more efficient engine. Is this an ethical question or just a simple cost accounting problem? How would you analyze this from the perspective of shareholder theory? How would you analyze this from the perspective of stakeholder theory? If this car manufacturer does decide to produce the more fuel-efficient car, would you consider it to be an act of corporate social responsibility?Would your answer to the preceding question be different if the car manufacturer's motivation was simply to increase its profits by selling more cars?

Answer 1

Answer:

a.         It is an ethical question, as well as a cost accounting problem.

b.         Under shareholder theory, the only consideration is whether the company maximizes shareholder wealth. The only inquiry is whether the company will generate sufficient additional revenues to cover the cost of adding the more fuel-efficient engine.

c.         There are various stakeholders, including all people who would benefit from reduced pollution, all people who would benefit from a reduction in the country’s dependence on foreign oil, consumers who might save money on gas, oil producers who might sell less fuel and received lower prices as demand subsides, and government regulators.

d.         Under one widely-accepted definition of CSR, an act that is done solely to enhance a company’s own profits is not a CSR act. Therefore, this may merely be a self-serving act, not an act of civic responsibility.

e.         No, applying the definition stated above.