Company Z sells conductors that are used in handheld consumer electronics. The company has been extremely successful recording an increase in earnings each of the past four quarters. At the end of the current quarter, Wallace, the company’s accountant, calculated the ending inventory for the conductors and was surprised to find that the quantity of the Z2100 model had not changed during the quarter. Wallace confirmed his calculation with the inventory control manager, who indicated that sales of the Z2100 had stopped when the Z1234 conductor was released early in the quarter. Wallace found out that the Z1234 conductor has the same applications as the Z2100, but has more computing power and a lower cost than the Z2100. Wallace notified Lizabeth Snyder, the chief financial officer, about the conductors and recommended that the company apply the lower-of-cost-or-market method to the Z2100 conductors in inventory. Later that day, Lizabeth called Wallace telling him not to apply the lower-of-cost-or-market method to the Z2100 inventory since this would cause the company not to meet its earnings goal for the current quarter.” Reluctantly, Wallace followed Lizabeth's instructions.

Evaluate the decision not to apply the lower-of-cost-or-market method in the current quarter.

1. Who benefits from this decision?

2. Who is harmed by this decision?

3. Are Wallace and Lizabeth acting in an ethical manner?

Answer rating: 100% (QA)

1 The companys management and its shareholders will benefit from this decision By deciding against using the lowerofcostormarket method to value its i... View the full answer