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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

Ethics in Action

 Dash Riprock is a cost analyst with Safe Insurance Company. Safe is applying standards to its claims payment operation. Claims payment is a repetitive operation dial could be evaluated with standards. Dash used time and motion studies to identify an ideal standard of 36 claims processed per hour. The Claims Processing Department manager, Henry Tudor, has rejected this standard and has argued that the standard should be 30 claims processed per hour. Henry and Dash were unable to agree, so they decided to discuss this matter openly at a joint meeting with the vice president of operations, who would arbitrate a final decision. Prior to the meeting, Dash wrote the following memo to the VP:

 To: Anne Boleyn, Vice President of Operator

 From: Dash Riprock

 Re: Standards in the Claims Processing Department

 As you know, Henry and I are scheduled to meet with you to discuss our disagreement with respect to the appropriate standards for the Claims Processing Department. I have conducted time and motion studies and have determined that the deal standards is 36 claims processed per hour. Henry argues that 30 claims processed per hour would be more appropriate. I believe he is trying to ‘pad’ the budget with some slack. I’m not sure what he is trying to get away with, put I believe a tight standard will drive up efficiency in his area. I hope you will agree when we meet with you next week.

 Discuss the ethical and professional issues in this situation.

To determine

Standard cost:

In the accounting records, the term standard cost refers to the practice of replacement of an expected cost for an actual cost. Then the difference between the expected costs and actual costs showing the variance are also recorded periodically. A standard costs is also known as target cost or predetermined cost.

To discuss: The ethical and professional issues in the above situation.

Explanation

The ethical and professional issues in the above situation are as follows:

  • According to Person H, the claims processing department manager, the use of ideal standards is a reasonable concern. It is likely that the standards suggested by Person D, a cost analyst, are not flexible, and they do not include the necessary fatigue factors which are likely in the claims payment operation. It seems that Person H is arguing for the practical standards that can be used by the Insurance Company S, if the operation is running well...

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