Case 14-49 Capital Investment and Ethical Behavior

Manny Carson, certified management accountant and controller of Wakeman Enterprises, has been given permission to acquire a new computer and software for the company’s accounting system. The capital investment analysis showed an NPV of $100,000. However, the initial esti- mates of acquisition and installation costs were made on the basis of tentative costs without any formal bids. Manny now has two formal bids, one that would allow the firm to meet or beat the original projected NPV and one that would reduce the projected NPV by $50,000. The second bid involves a system that would increase both the initial cost and the operating cost.

Normally, Manny would take the first bid without hesitation. However, Todd Downing, the owner of the firm presenting the second bid, is a close friend. Manny called Todd and explained the situation, offering Todd an opportunity to alter his bid and win the job. Todd thanked Manny and then made a  counteroffer.

 

Todd: Listen, Manny, this job at the original price is the key to a successful year for me. The rev- enues will help me gain approval for the loan I need for renovation and expansion. If I don’t get that loan, I see hard times ahead. The financial stats for loan approval are so marginal that reducing the bid price may blow my chances.

Manny: Losing the bid altogether would be even worse, don’t you think?

Todd: True. However, if you award me the job, I’ll be able to add personnel. I know that your son is looking for a job, and I can offer him a good salary and a promising future. Additionally, I’ll be able to take you and your wife on that vacation to Hawaii that we’ve been talking  about.

Manny: Well, you have a point. My son is having an awful time finding a job, and he has a wife and three kids to support. My wife is tired of having them live with us. She and I could use a vacation. I doubt that the other bidder would make any fuss if we turned it down. Its offices are out of state, after all.

Todd: Out of state? All the more reason to turn it down. Given the state’s economy, it seems almost criminal to take business outside. Those are the kind of business decisions that cause problems for people like your son.

 

Required:

Evaluate the ethical behavior of Manny. Should Manny have called Todd in the first place? What if Todd had agreed to meet the lower bid price—would there have been any problems? Identify the parts of the Statement of Ethical Professional Practice (Chapter 1) that Manny may be violating, if any.