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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Communication

TAC Industries sells heavy equipment to large corporations and to federal, state, and local governments. Corporate sales are the result of a competitive bidding process, where TAC competes against other companies based on selling price. Sales to the government, however, are determined on a cost plus basis, where the selling price is determined by adding a fixed markup percentage to the total job cost.

Tandy Lane is the cost accountant for the Equipment Division of TAC Industries Inc. The division is under pressure from senior management to improve income from operations. As Tandy reviewed the division’s job cost sheets, she realized that she could increase the division’s income from operations by moving a portion of the direct labor hours that had been assigned to the job order cost sheets of corporate customers onto the job order costs sheets of government customers. She believed that this would create a win-win for the division by (1) reducing the cost of corporate jobs and (2) increasing the cost of government jobs whose profit is based on a percentage of job cost. Tandy submitted this idea to her division manager, who was impressed by her creative solution for improving the division’s profitability.

Is Tandy’s plan ethical? Explain.

To determine

Job order costing

Job order cost system provides a separate record of each particular quantity of product that passes through the factory. Each quantity that is manufactured in the business is known as job. Job order costing is used when the products produced are significantly different from each other.

To explain: If T’s plan is ethical in the scenario.

Explanation

No. Mr. T’s plan is not ethical in this scenario. A job order cost accounting system accumulated and record the product cost for each job completed. The ending total and unit product costs can be compared to similar jobs and it can be compared over period and also it can be compared with expected costs. Moreover, the job order cost system is used by managers for evaluation of cost and for controlling of cost...

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