Question

Introduction, key issue/s, analysis and recommendation sections for each separate scenario.

"Is there anything wrong?"
Scenario 1
You run a small business that takes older machines and refurbishes them to sell at a "charitable" price. You are doing good for the environment and helping those who need these machines get one at a reasonable price when otherwise they would not have been able to afford one. … yes, business is and can be about helping others, it is not all about making a profit and selling stuff to people that don’t necessarily need stuff.
As the owner you have hired a few people to run the business. They look after purchasing and selling, collecting and distributing. You charge (sell the machines for) a small "up-charge" of 5% over cost to cover your operating costs.
Some pertinent financial data for 2022: beginning inventory $5,000, ending inventory $6,000, purchases for the year $61,000 and sales for the year $15,000.
Is there anything wrong with your business? Think through this scenario carefully considering some of the things we have learned in accounting.
Scenario 2
As manager of a department at a significant sized manufacturing company you are responsible for many things. The gist of your role however, as manager, is essentially to ensure the smooth day-to-day operation of your particular department. Included in this is the financial aspect of your entire department which involves tracking, reporting, some recording, analyzing and budgeting any financial aspects of the department.
You spend a lot of time working on the financial side of the department’s operations. You consult with your staff and collect all pertinent data to make wise decisions along with keeping company goals in mind.
Things are always tight in this manufacturing industry – it is a common product but profit margins are tight and thus any actual or budgeted (projected) cost savings are always looked upon with favor at every level of the company but especially at the upper levels of the company. As a large company there are many levels of responsibility. You, as manager of your department, report to a senior manager who is responsible for a regional division of which you are just one of several local area departments.
You have recently found out that your senior manager has been changing your department’s financial numbers and financial projections without consulting with you and without communicating the changes to you. These changes, while making profit margins look acceptable and meeting company targets, will have a significant negative impact on your department over the next several years – both from a human resource and manufacturing standpoint.
Are there issues here? What should you do?

Answer 1

In scenario 1, low sales revenue compared to high costs is a concern. In scenario 2, the senior manager changing financial numbers without communication is a clear issue.

Step-by-step explanation:

Scenario 1: There are potential issues with your small business. One concern is the low sales revenue compared to the high cost of purchases. In 2022, your sales were only $15,000, while your purchases amounted to $61,000. This indicates a significant loss in profit. You may need to review your pricing strategy or find ways to reduce costs.

Scenario 2: There are clear issues in this scenario. Your senior manager changing your department's financial numbers without consulting or communicating with you is unethical and could negatively impact your department in the long run. It is important to address the issue by discussing it with your senior manager and ensuring transparent communication in the future.