Jill Smith, the cost accountant for Tampa Bay Mowing Manufacturing Company, recently installed activity-based costing2 at the firm’s Lakeland plant where three models, - the 8-horsepower Cheapcut, the 12-horsepower Quickcut, and the 18-horsepower Premiumcut – are manufactured. Jill’s new product costs for those three models show that the company’s traditional costing system had been significantly under costing the 18-horsepower Premiumcut mower. This was due primarily to the lower sales volume of the Premiumcut compared to the Cheapcut and the Quickcut. Before completing her analysis and reporting these results to management, Jill is approached by her friend John Jacobs, who is the production manager for the 18-horsepower Premiumcut model. John has heard from one of Jill’s staff about the new product costs and is upset and worried for his job because the new costs show the Premiumcut to be losing, rather than making money. At first, John condemns the new cost system, whereupon Jill explains the practice of activity-based costing and why it is more accurate than the company’s present system. Even more worried now, John begs Jill, “Massage the figures just enough to save the line from being discontinued. You don’t want me to lose my job do you? Anyway, nobody will know.” Jill holds firm but agrees to recompute all her calculations for accuracy before submitting her costs to management. (a) Provide answers to the following questions using full grammatically correct sentences and paragraphs. Ensure that your response is in a professional tone. (b) What are the over-riding principles that management accountants are held to under the IMA Statement of Ethical Practice and why are they important? (c) Who are the stakeholders3 that are affected by Jill’s actions? Be specific and indicate how they are impacted (positively or negatively) and why. (d) What are Jill’s ethical obligations to the company? To her friend? (e) Using the IMA Statement of Ethical Professional Practice, identify the standards that Jill would violate should she go along with John’s request. Be specific and explain why the standard would be violated. (f) How could Jill help her friend yet still uphold her ethical obligations?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Jill Smith, the cost accountant for Tampa Bay Mowing Manufacturing Company, recently installed activity-based costing2 at the firm’s Lakeland plant where three models, - the 8-horsepower Cheapcut, the 12-horsepower Quickcut, and the 18-horsepower Premiumcut – are manufactured. Jill’s new product costs for those three models show that the company’s traditional costing system had been significantly under costing the 18-horsepower Premiumcut mower. This was due primarily to the lower sales volume of the Premiumcut compared to the Cheapcut and the Quickcut. Before completing her analysis and reporting these results to management, Jill is approached by her friend John Jacobs, who is the production manager for the 18-horsepower Premiumcut model. John has heard from one of Jill’s staff about the new product costs and is upset and worried for his job because the new costs show the Premiumcut to be losing, rather than making money. At first, John condemns the new cost system, whereupon Jill explains the practice of activity-based costing and why it is more accurate than the company’s present system. Even more worried now, John begs Jill, “Massage the figures just enough to save the line from being discontinued. You don’t want me to lose my job do you? Anyway, nobody will know.” Jill holds firm but agrees to recompute all her calculations for accuracy before submitting her costs to management.
(a) Provide answers to the following questions using full grammatically correct sentences and paragraphs. Ensure that your response is in a professional tone.
(b) What are the over-riding principles that
(c) Who are the stakeholders3 that are affected by Jill’s actions? Be specific and indicate how they are impacted (positively or negatively) and why.
(d) What are Jill’s ethical obligations to the company? To her friend?
(e) Using the IMA Statement of Ethical Professional Practice, identify the standards that Jill would violate should she go along with John’s request. Be specific and explain why the standard would be violated.
(f) How could Jill help her friend yet still uphold her ethical obligations?
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