Review the IMA Statement of Ethical Professional Practice

QUESTIONS
1. Repeat the profitability analysis of this order using a contribution margin approach rather than a gross
margin approach. What do the results of this new analysis reveal about this order? Do these results
support Wendy’s original conclusion?
2. How would you use this new information to explain further to Bill and Joe the need either to re-price
or to reject this order?
3. What other financial information would be useful to enable further analysis of this order?
4. Review the IMA Statement of Ethical Professional Practice. In this case Wendy, a CMA, is the only
employee bound by the ethical standards presented in that statement. However, for purposes of this
question assume that it is also appropriate to use those same ethical standards to evaluate the behavior
of Bill and Joe.
Journal of Business Case Studies – First Quarter 2016 Volume 12, Number 1
Copyright by author(s); CC-BY 16 The Clute Institute
a. Which (if any) of those ethical standards have Wendy, Bill, and Joe met? Indicate specifically
which standards each of them may have met and which actions met those standards.
b. Which (if any) of those ethical standards have Wendy, Bill, and Joe violated? Indicate specifically
which standards each of them may have violated and which actions constituted violations of those
standards.
5. Using the IMA Resolution of Ethical Conflict as a guide, what recommendations would you make to
Wendy?
PROPOSED SOLUTIONS
1. The contribution margin analysis, presented in Table 2, shows that this order has a negative
contribution margin per unit. That is, at the current selling price the variable cost per unit exceeds the
selling price per unit. These results are consistent with Wendy’s original conclusion: This order will
not be profitable.
Table 2. Profitability Analysis Based on Contribution Margin
Selling Price $ 77.00
Variable Cost Per Unit
Direct Materials $ 67.50
Direct Labor $ 5.50
Variable Overhead $ 2.00
Sales Commissions (4 percent of selling price) $ 3.08
Variable Cost Per Unit $ 78.08
Contribution Margin Per Unit $ (1.08)
2. Accepting this order at the current price will reduce Blaze’s overall profits. An unprofitable order like
this one should either be re-priced (to be profitable) or rejected.
3. No other financial information would be useful in further analyzing this case. In fact, no further
analysis is needed: An order with a negative contribution margin reduces the company’s overall
profitability and under normal circumstances should not be accepted.
4. a. Wendy has taken numerous actions that meet the IMA standards.
• Competence: The first responsibility in the competence standard is to maintain appropriate
professional expertise. Wendy has an appropriate level of education and experience for the
job she is doing. In addition, she is also continually developing her knowledge and skills by
learning about the manufacturing process.
• Competence: The third responsibility in the competence standard is to provide decision
support information. Wendy is providing timely decision support and recommendations with
the order cost analysis.
• Credibility: The first responsibility in the credibility standard is communication. Wendy has
communicated information fairly and objectively.
• Credibility: The second responsibility is to disclose relevant information. Wendy is meeting
this responsibility by providing the cost analysis for management to make a decision
regarding the order.
• Credibility: The third responsibility is to make disclosures. At the end of the case, Wendy is
deciding how to further handle the situation. In order to meet the third responsibility in
Credibility, she must report to the owners the potential for losses if the order is accepted by
the comp
1. Repeat the profitability analysis of this order using a contribution margin approach rather than a gross
margin approach. What do the results of this new analysis reveal about this order? Do these results
support Wendy’s original conclusion?
2. How would you use this new information to explain further to Bill and Joe the need either to re-price
or to reject this order?
3. What other financial information would be useful to enable further analysis of this order?
4. Review the IMA Statement of Ethical Professional Practice. In this case Wendy, a CMA, is the only
employee bound by the ethical standards presented in that statement. However, for purposes of this
question assume that it is also appropriate to use those same ethical standards to evaluate the behavior
of Bill and Joe.
Journal of Business Case Studies – First Quarter 2016 Volume 12, Number 1
Copyright by author(s); CC-BY 16 The Clute Institute
a. Which (if any) of those ethical standards have Wendy, Bill, and Joe met? Indicate specifically
which standards each of them may have met and which actions met those standards.
b. Which (if any) of those ethical standards have Wendy, Bill, and Joe violated? Indicate specifically
which standards each of them may have violated and which actions constituted violations of those
standards.
5. Using the IMA Resolution of Ethical Conflict as a guide, what recommendations would you make to
Wendy?
PROPOSED SOLUTIONS
1. The contribution margin analysis, presented in Table 2, shows that this order has a negative
contribution margin per unit. That is, at the current selling price the variable cost per unit exceeds the
selling price per unit. These results are consistent with Wendy’s original conclusion: This order will
not be profitable.
Table 2. Profitability Analysis Based on Contribution Margin
Selling Price $ 77.00
Variable Cost Per Unit
Direct Materials $ 67.50
Direct Labor $ 5.50
Variable Overhead $ 2.00
Sales Commissions (4 percent of selling price) $ 3.08
Variable Cost Per Unit $ 78.08
Contribution Margin Per Unit $ (1.08)
2. Accepting this order at the current price will reduce Blaze’s overall profits. An unprofitable order like
this one should either be re-priced (to be profitable) or rejected.
3. No other financial information would be useful in further analyzing this case. In fact, no further
analysis is needed: An order with a negative contribution margin reduces the company’s overall
profitability and under normal circumstances should not be accepted.
4. a. Wendy has taken numerous actions that meet the IMA standards.
• Competence: The first responsibility in the competence standard is to maintain appropriate
professional expertise. Wendy has an appropriate level of education and experience for the
job she is doing. In addition, she is also continually developing her knowledge and skills by
learning about the manufacturing process.
• Competence: The third responsibility in the competence standard is to provide decision
support information. Wendy is providing timely decision support and recommendations with
the order cost analysis.
• Credibility: The first responsibility in the credibility standard is communication. Wendy has
communicated information fairly and objectively.
• Credibility: The second responsibility is to disclose relevant information. Wendy is meeting
this responsibility by providing the cost analysis for management to make a decision
regarding the order.
• Credibility: The third responsibility is to make disclosures. At the end of the case, Wendy is
deciding how to further handle the situation. In order to meet the third responsibility in
Credibility, she must report to the owners the potential for losses if the order is accepted by
the comp