Expert answer:accounting project
Expert answer:for this case study please do all the question and for the writing part make it 3 pages the total direct labor 12500, for question 1
dinesh_dilemma_case_study_nov_15_2017.pdf
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ACCT 2310
DINESH’S DILEMMA
Marinilka Barros Kimbro, Ph.D. and Danlei Chen
O’Brian & McKinney (OM) is a public relations (PR) firm that represents elite athletes and
celebrities. Tom O’Brian and Kate McKinney founded the firm in 2000, and since then the firm
has grown dramatically. As of July of 2017, OM’s annual revenue exceeds $8 million dollars.
Lately, the business has been under pressure. Competition has increased, and multiple PR firms
have entered the space. Cash flow is
very tight, and profit margins are lower than the industry
average. During 2017 OM has lost 9 important clients and the relationship between Kate and Tom
is very tense, since Tom is advocating for personnel reduction, while Kate is not.
On Thursday, November 16 of 2017 at around 4:40 PM, Kate McKinney just ended a
difficult conversation with Russell Brady (2017 NFA MVP). Russell is very upset and expressed
that he is inclined to end his relationship with OM, since he argues that he has been overcharged.
OM billed Russell more than $50,000 for September & October 2017 and Russell thinks this is an
excessive amount since other quarterbacks pay $30,000 or less for similar services. Kate assures
Russell that she will investigate to find out what is happening.
John Goodfellow is the Account Executive in charge of Russell’s account and Kate is
concerned that John might have been overbilling Russell. She looks at the hours billed to Russell
and concludes that they are reasonable, and comparable to other players; so, she decides to talk to
the Controller, Mr. Loveless, to see if he can explain. When she gets to the Accounting Department
Kate finds that the Controller is already gone for the day, and she the only person still working at
the Accounting department is young new hire: Dinesh Kumar. She introduces herself to Dinesh
and explains that she needs to understand why Russell Brady is being charged so much since the
number of hours billed is comparable to other clients who do not get charged as much. Dinesh tells
her that he will work on it immediately and promises an answer by the next day, Friday morning.
Early morning on Friday, November 17, Tom O’Brian had a great conversation with Colin
Bennet who called to renew his contract with O’Brian & McKinney. Collin has been going through
a difficult situation since he has chosen not to stand for the National Anthem ceremony that occurs
before each game. Collin position is to draw public attention to recent incidents of police brutality
against African Americans, and his stance has created a lot of controversy. Colin is very happy
with OM’s representation which has been very effective at managing all the press that his actions
DINESH’S DILEMMA: ABC COST ALLOCATION & ETHICAL DECISION MAKING
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have generated. Danielle Chen, is the Account Executive managing Collin’s account and Tom
wants to promote Danielle and give her a performance bonus. Soon after, at 11:30am, Tom learns
through his assistant that Russell Brady has been talking to other PR firms. Tom is concerned,
since he hasn’t heard anything from Kate. Tom calls Kate and demands an explanation. Kate
explains that she is expecting a report from the Accounting Department and that she will discuss
at the partners’ meeting later that day at 2:00pm. Tom demands that Kate fire John immediately
and that the account be transferred to him so that Danielle Chen can take over, since Danielle had
been successfully managing Colin’s Bennet account. Kate responds that she would like to wait
until she gets all the information before she fires anybody. Tom reluctantly agrees.
Dinesh worked through the night. He found that his boss (the Controller: Mr. Loveless)
had been using a very simple indirect costing system based on a single direct-cost category
(professional labor-hours) to allocate overhead (OH). Dinesh decided to look at the indirect costs
more closely applying an activity based costing (ABC) allocation system. After running the
numbers, he was shocked. It was clear that the entire costing/billing system was very flawed, and
that Russell Brady had been overcharged while Colin Bennet had been under-charged. Mr.
Loveless found out about what Dinesh had been doing and went to Dinesh to ask him why he
hadn’t been notified. He looked at the report and he was furious, since he had been working at OM
for more than 15 years and he was sure that the costing/billing was correct. Mr. Loveless told
Dinesh to stop communicating with Kate since he wanted to take care of the matter. Soon after,
Kate called and Dinesh explained that there were some problems with the costing and billing
system and that this had caused the over-charging. Kate interrupted Dinesh and told him that he
needed to come to the Partners meeting and report on the billing of Russell Brady and Colin Bennet
to Tom as well. She explained that the issue was very important since the firm was contemplating
firing John Goodfellow because they could lose Russell Brady’s account who believed that he has
been overcharged; while promoting Danielle Chen who had done a great job.
It was 1:30pm and Dinesh was super nervous and didn’t know what to do. Should he
communicate his findings to anyone? And if so, what should his message be? Should he attend the
meeting ignoring the instructions of his boss? He knew that Tom would not like the report and that
Mr. Loveless would be furious. He also knew that John Goodfellow would lose his job and that
Russell Brady would leave the firm if he didn’t do something. He never thought that his job would
involve so much drama and controversy. What to do?
DINESH’S DILEMMA: ABC COST ALLOCATION & ETHICAL DECISION MAKING
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Table 1
Direct Costs for September & October, 2017
Rate
Russell Brady
125 hrs.
$130/hr.
Direct Labor(DL): Professional
Collin Bennet
125 hrs.
Table 1 shows the direct costs of professional labor costs for Russell Brady and Colin Bennet. The
estimated professional hours (DL) for 2017 are 12,500 hrs. Table 2 shows the total estimated
indirect costs (OH) costs for OM for 2017. Indirect costs had been allocated based on DL hours.
Table 2
Budgeted Indirect (OH) Costs for 2017
Total
Estimated
Indirect Costs
Research & Admin support
990,000
8000 hrs.
Technology
200,000
2000 hrs.
Travel
900,000
30000 miles
Travel allowance
475,000
2500 days
Tech support
245,000
4000 hrs.
Office Space
1,500,000
5200 sq.ft.
Entertainment and meals
500,000
5000 meals
Photocopying & materials
300,000
1200 client months
Total Estimated Overhead costs $5,110,000
Table 3 shows the actual OH costs for Russell and Colin for the months of September and October
Dinesh was able to classify the indirect cost using the following cost-pools and traced each of them
to each account.
Table 3
Actual Indirect (OH) Costs for September & October, 2017
Total
Russell Brady
Collin Bennet
Indirect Costs
Research & Admin support
$22,000
30 hrs.
128 hrs.
Technology
$6,200
25 hrs.
42 hrs.
Travel
$67,000
500 miles
1650 miles
Travel allowance
$5,750
5 days
25 days
Tech support
$1,600
8 hrs.
17 hrs.
Office Space
$12,400
23 sq. feet
20 sq. Feet
Entertainment and meals
$4,200
10 meals
35 meals
Promotional materials, photocopying, etc. $2,000
$150
$1,850
Actual Total Overhead costs
$121,150
DINESH’S DILEMMA: ABC COST ALLOCATION & ETHICAL DECISION MAKING
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Table 4 Characters
Name
Tom O’Brian
Kate McKinney
Russell Brady
John Goodfellow
Mr. Loveless
Dinesh Kumar
Collin Bennet
Danielle Chen
Roles
Co-founder of O’Brian & McKinney (OM)
Co-founder of O’Brian & McKinney (OM)
Important and unhappy client
Account Executive in charge of Russell Brady’s account
Controller (Dinesh’s Boss)
New hire accountant
Happy client
Account Executive in charge of Collin Bennet’s account
Required Assignment:
1. Compute the billing for September/October 2017 for Russell Brady and Collin Bennet allocating
OH on the basis of a single cost-driver: professional hours (estimated 12,500 hrs. 2017). (20 pts.)
2. Compute the billing for September/October 2017 for Russell Brady and Collin Bennet allocating
OH using Activity Based Costing (ABC) with the data provided by Dinesh. (30 pts.).
3. In addressing the following questions, your task is to decide what Dinesh should do. If Dinesh
decides to attend the meeting, consider the organizational impact of discussing his analysis with
Kate and Tom. (50 pts)
a. If you were in Dinesh’s position; would you attend the Partner’s meeting (where
you would be asked to present your report to Kate and Tom)? Please list the pros
and cons of attending or not attending the meeting? (15 pts.)
b. Assume that Dinesh attended the meeting and explained to Kate and Tom the
significance of differences between using one cost-driver versus using ABC costing
to allocate OH. What course of action should OM take? Explain alternatives and
conclude with your position. Try to be specific and address the consequences to
all stakeholders involved (Russell, Colin, Danielle, John, Mr. Loveless, the rest of
the Account Executives, Dinesh and so forth). (10 pts.)
Individual assignment: (3-5 pages essay 1.5 spaced) (25 pts.)
A day later, after examining Dinesh’s report, Tom decides to fire John, promote Danielle, reduce
the billings of Russell, and continue allocating OH using a single cost driver (professional hours).
Kate calls Dinesh and tells him what is going to happen. Should Dinesh do something? Why or
why not? In your discussion make reference to the value framework in Appendix A.
DINESH’S DILEMMA: ABC COST ALLOCATION & ETHICAL DECISION MAKING
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Ethical Framework
Nathan Colaner, Ph.D
Many practices considered unethical by community standards or cultural norms (e.g. child labor),
by professional codes of conduct (e.g. sexual harassment), and by rules ensuring healthy
capitalism (e.g. insider trading), are explicitly embodied in laws. However, the law does not
perfectly reflect ethical principles, because some behavior commonly regarded as unethical is not
illegal, and certain illegal behaviors may not be unethical. Therefore, it is possible to make a legal
analysis and a separate ethical analysis of the same case.
Reflect on your course UCOR 2910: “Ethical Reasoning in Business.” (If you took it) Depending
on when you took it, and who your professor was, you may have used different terms or a different
framework to think about ethical values. But you likely can at least appreciate these five basic
ideas about what contributes to human well-being, more commonly called ‘values’:
Autonomy: A person’s ability to govern herself and to order her own life (as the
ethicists say, to be an ‘end in herself’) implies that she must not be used as a means
to an end that she did not choose (most closely associated with deontology)
Happiness: Perhaps our most basic moral instinct is that suffering (whether
physical or emotional) is bad because its takes away from a person’s happiness
(most closely associated with utilitarianism)
Equality: A person must not be regarded or treated as inferior to or superior to
other people
Trust: When people cooperate, they form trust, and living in a high- trust
environment makes possible many of the things we associate with a good life. So
trust is the goal, and cooperation is the way to get it (most closely associated with
contractarianism)
Character Excellence: I should want to be the kind of person who enjoys doing
ethical things and doesn’t enjoy doing unethical things. If so, I am a person with an
excellent or virtuous character, and this is widely regarded as a source of personal
well-being. However, by doing unethical things, I may harm or corrupt my own
character by forming unethical habits. So character excellence is the goal, and
forming ethical habits by doing moral actions is the way to get it (most closely
associated with virtue ethics)
DINESH’S DILEMMA: ABC COST ALLOCATION & ETHICAL DECISION MAKING
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