Jeremiah Wedgewood, the CFO, is adamant that the company needs to move ahead with the new division. While Josey also thinks that creating a new division with a new product line is a good idea, she is a little worried about how it will affect their financial statements in the short run. After carefully considering what was likely to happen, Josey scheduled an appointment to visit Jeremiah to discuss her concerns. "Josey!" Jeremiah said as she came into his office. "How are you doing today?" Josey smiled. Nothing ever seemed to really bother Jeremiah. "I'm doing well, thanks, Uncle Jerry. Just a little worried about our new division." "Worried?" Jeremiah asked. "About what?" "Well, let me start by saying that I agree adding these new candles is a great idea. I think we have a really good idea of how much we can charge for them to break into the market and stay competitive in the long run. While our costs will be high as we get the new division started, they will come down over time as we get more experience with these candles. But I'm a little concerned about what the division will do to our profits for the next couple of years. The profits won't be nearly as good as they are for our traditional candles for at least two years." "Relax, Josey," Jeremiah replied. "Keep in mind that this is a family-owned business, so that's not going to be a big deal. I mean, we don't have investors messing up our stock prices with every little piece of news. However," he paused, looking out his window for a moment as he thought about the changes. "We did just open up a new line of credit with our bank, and our interest rate is contingent on maintaining profitability in each segment. Shoot! I didn't think about the new credit line when I signed that deal. They offered such a low rate that I wanted to make sure I locked it in." He looked at Josey. "We don't have to show a large profit, just a profit. What do you think our chances are of just being above zero with the new division?" Josey shook her hand back and forth. "About 50-50, I'd say, at least for the first year." "That's not good enough," Jeremiah said, shaking his head. "What if we adjust the overhead allocation so that both divisions show a profit?" Josey frowned. "Now, don't write me off as a bad guy, Josey. This wouldn't be right if we were a public company because we would be misleading investors, but, as I said, we don't have any investors, just the family." "What about the bank?" Josey asked. "Well, think about it," Jeremiah said, a smile again forming on his lips. "They really just want to make sure that we'll have the cash to pay them back. What I'm talking about won't affect our cash flows at all. We're just shifting overhead from one division to another. Companies do that all time. Josey looked at Jeremiah as she considered his request. She was confident that the new division would be profitable soon, probably in just a year or two. And their overhead was applied on a pretty arbitrary basis, especially when using a single, plant-wide rate, or even departmental rates. There was no way to really know if the amount of overhead applied to any product was the "real" amount. Activity-based costing would get them closer to an actual cost, but she hadn't had time to get into that yet. And Jeremiah was certainly right: the last thing they needed now was for the bank to raise the interest rates over a bookkeeping technicality. Since the totals would all be the same, why not just assign overhead to make sure each division was equally profitable? Review the four principles and four standards of the IMA's Statement of Ethical Professional Practice (There is probably a copy in your Managerial Accounting or Cost Accounting textbook. However, you can also find this online by Googling "IMA Statement of Ethics.") Based on these principles and standards, do you believe that there are any ethical violations in Jeremiah's proposal

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Jeremiahs proposal raises ethical concerns based on the four principles and four standards of the IMAs Statement of Ethical Professional Practice Lets ... View the full answer