Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 21

Ethics and Channel Stuffing

Continental Condiments is a large food products firm in Pennsylvania. Its sales staff has a strong incentive plan tied to meeting quarterly budgets. On June 25, Maria Tuzzi, a divisional controller, learns that some of the sales staff asked customers to take delivery of sizable quantities of products before June 30. The customers were told they could return the products after July 1 if they determined the items were not needed. (This is referred to as “channel stuffing.”) The sales staff also offered to reimburse the customers for any storage costs incurred.

Required

a.From the viewpoint of the IMA’s “Statement of Ethical Professional Practice,” what are Maria’s responsibilities?

b.What steps should she take to resolve this problem?

Step 1 of 2

a.?As a management accountant, Maria has a responsibility to perform her professional duties with competence in accordance with relevant laws and regulations. Channel stuffing borders on illegal activity, especially if it is done to defraud investors by presenting results that are not achieved. As a professional, she must communicate both favorable and unfavorable information in an objective and fair manner. Thus, she cannot simply ignore the fact that the managers are engaging in this behavior.