You are the Cookie division controller for Auntie M’s BakedGoods Company. Auntie M recently introduced a new chocolate chipcookie brand called Full of Chips, which has more than twice asmany chips as any other brand on the market. The brand has quicklybecome a huge market success, largely because of the number ofchips in each cookie. As a result of the brand’s success, theproduct manager who launched the Full of Chips brand has beenpromoted to division vice president. A new product manager,Brandon, has been brought in to replace the promoted manager.

At Auntie M’s, product managers are evaluated on both the salesand profit margin of the products they manage. During his firstweek on the job, Brandon notices that the Full of Chips cookie usesa lot of chips, which increases the cost of the cookie. To improvethe product’s profitability, Brandon plans to reduce the amount ofchips per cookie by 10%. He believes that a 10% reduction in chipswill not adversely affect sales, but will reduce cost and, hence,help him improve the profit margin. Brandon is focused on profitmargins, because he knows that if he is able to increase theprofitability of the Full of Chips brand, he will be in line for abig promotion.

To confirm this plan, Brandon has enlisted you to help evaluateit. After reviewing the cost of production reports segmented bycookie brand, you notice that there has been a continual drop inthe materials costs for the Full of Chips brand since its launch.On further investigation, you discover that chip costs havedeclined because the previous product manager continually reducedthe number of chips in each cookie. Both you and Brandon report tothe division vice president, who was the original product managerfor the Full of Chips brand who was responsible for reducing thechip count in prior periods.

1. Is this an ethical strategy for Brandon to pursue? What are thepotential implications of this strategy?

2. What options might you, as the controller, consider taking inresponse to Brandon’s plan?