Question

LRF Printing provides printing services to many different corporate clients. Although LRF bids most jobs, some jobs, particularly new ones, are negotiated on a “cost-plus” basis. Cost-plus means that the buyer is willing to pay the actual cost plus a return (profit) on these costs to LRF.

Alice Reiley, controller for LRF, has recently returned from a meeting where LRF's president stated that he wanted her to find a way to charge more costs to any project that was on a cost-plus basis. The president noted that the company needed more profits to meet its stated goals this period. By charging more costs to the cost-plus projects and therefore fewer costs to the jobs that were bid, the company should be able to increase its profit for the current year.

Alice knew why the president wanted to take this action. Rumors were that he was looking for a new position and if the company reported strong profits, the president's opportunities would be enhanced. Alice also recognized that she could probably increase the cost of certain jobs by changing the basis used to allocate manufacturing overhead.

Instructions

(a) Who are the stakeholders in this situation?

(b)  What are the ethical issues in this situation?

(c) What would you do if you were Alice Reiley?

Answer 1

(a) Who are the stakeholders in this situation?

Answer -

The stakeholders are the clients and customers in these situations.

(b)  What are the ethical issues in this situation?

Answer -

In this case, the ethical issue is the clients other than bidders have to suffer by paying hefty price in addition to their services received.
cost would be lowered to buyer/bidder, but the other clients have to pay for the services they utilised and compensate the amount that has been reduced on the heads of buyer/bidder, also they [the other clients] have to pay the extra profit the company is trying to gain to rise their profits.

So, here the other clients will be at loss unknowingly that they are paying huge sum in addition to their services received, but the bidders encounter cost cuttings in their prices as they have to pay the new reduced prices now.

This is not unethical. and since it is no monopoly either, One can always chose to not pay for , if they feel the prices are high.
But if the agreement has already been made to pay for the services received in past, the other clients have to bear the loss.

(c) What would you do if you were Alice Reiley?

Answer -

The suggestion by president is not unethical, as the price fluctuations and variations of a product/service is an internal aspect , resting on decision of board people, but affecting all of their the stakeholders together.

This higher prices may have an impact on long term, which can have adverse effect. If i were Alice Rely, i would suggect to not reduce the prices for sake of extra profits putting the goodwill of company at risk, but rather go mid-way or avoid possible complications by rising the prices.