Need some help! Is this a MCI/Enron thing? Anyone know the right answer?
Benson and Jencks is a manufacturing company that specializes in writing
instruments. The past year was a difficult one for the company, as it sought
to retain its share in a market in which the largest competitors were also
rapid innovators. Benson and Jencks introduced a new product late in the
year, even though testing was not complete. It was a pen designed with two
cartridges: one supplying ink and the other correction fluid. A person could
then switch easily between writing and correcting errors. It was priced
fairly high, and was never heavily advertised. Even so, the Correct-O-Pen,
as the product was named, was an overwhelming success.
The success of the product has Fern Donald, the manager of the New
Products division, worried, however. She was concerned that quality problems
would begin occurring, since the longevity of the pen and stability of the
correction fluid formulation had not been tested. She did not want sales
personnel to get the bonuses that appeared to be indicated, since they might
aggressively promote a product that would fail in use. She preferred to
complete testing of the pen first, so that more confidence could be placed
in the results.
Top management, however, declined the tests. Ms. Donald then instructed
you, the accountant, not to prorate payroll taxes or rent expense for the
rest of the year, but to show them as current expenses in total. In this
way, the new product would appear to be only slightly profitable.
What alternatives would the accountant have in this situation?
What alternative would be best?
Lost in the sauce student