Question

Ethical behaviour for managers and management accountants

Mr Asrul, the purchasing agent for a Tenggara Manufacturing Division was considering the possibility of purchasing a component from a new supplier. The price is RM0.70 which is below the standard price of RM0.90. The favourable price variance would help Asrul to produce an impressive performance report which is good enough to qualify him for an annual bonus. More importantly, a good performance this year would secure him a position at the headquarters with a significant salary increase.

However, there was doubt on his part knowing the background of the new supplier. Reports were basically negative, indicating that the supplier was known to make two to three delivery on time, but being unreliable there on. There were also questions regarding the quality of the parts delivered, with life of the components being 25 percent less than what normal sources would provide.

If the component was purchased, no problems would surface for several months. By then, Asrul would already be at the headquarters. Considering the minimum personal risk, Asrul continues with the decision to purchase from the new supplier.

Required:

Discuss whether Asrul’s action is ethical. Do you think that the use of standards and practice of holding individuals accountable for their achievement played major roles in Asrul’s decisions?

       [8 marks]

Answer 1

Corporate practice always choose the suppliers having lower rate than other that is company always
focus on favourable price variance. Therefore from the point of view of favourable price variance,
puchasing from new supplier is right but simultaneously it is also need to verify the credibility of
suppliers i.e. quality of goods delivered and future returned option, etc.
As in this case, experience and information indicate that record and information about the new
supplier is not satisfactory. So favourable price variance is meaningless as if there is posibility of
bad quality and option of returned may be absent while dealing with this suppliers.
So, explained above it is not ethical as decision taken by Asrul.