Question

 Ethics in Managerial Accounting

 Marcus Lim, the cost accountant for Hi-Power Mower Company, recently installed activity-based costing2 at Hi-Power's St. Louis lawn tractor (riding mower) plant where three models, - the 8- horsepower Bladerunner, the 12-horsepower Quickcut, and the 18-horsepower Supercut- are manufactured. Marcus's new product costs for those three models show that the company's traditional costing system had been significantly under costing the 18-horsepower Supercut. This was due primarily

 to the lower sales volume of the Supercut compared to the Bladerunner and the Quickcut.

 Before completing his analysis and reporting these results to management, Marcus is approached by his friend Ray Pon, who is the production manager for the 18-horsepower Supercut model. Ray has heard from one of Marcus's staff about the new product costs and is upset and worried for his job because the new costs show the Supercut to be losing, rather than making, money.

 At First Ray condemns the new cost system, whereupon Marcus explains the practice of activity-based costing and why it is more accurate than the company's present system. Even more worried now, Ray begs Marcus, "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."

 Marcus holds firm but agrees to recompute all his calculations for accuracy before submitting his costs to management.

 1. What are the over-riding principles that management accountants are held to under the IMA Statement of Ethic Practice and why are they important?

 2. Who are the stakeholders3 that are affected by Marcus's actions? Be specific and indicate how they are impacted (positively or negatively) and why ?

 3. What are Marcus's ethical obligations to the company? To his friend?

 4. Using the IMA Statement of Ethical Professional Practice, identify the standards that Marcus would violate should he go along with Ray's request. Be specific and explain why the standard would be violated ?

 (f) How could Marcus help his friend yet still uphold his ethical obligations?

Answer 1

Facts of the Case: With the Installation of Activity Based Costing , Manufacturing of three plants 8 , 12, 18 ( Used prefix number for symbolizing the models). Under Traditional Cost ing Understated the product unit of Model 18. Sale is also lower in Model 18 as compared to Model 8 and 12.

On Analysis of Report by Marcus, His Friend Ray approached with the hope of helping hand, as due to his reports chances of loss of job may occur. Ray has requested Marcus to play with the figures of Model 18. Marcus Agrees for recompilation before submission of Report to Management.

1. It Includes the Principle of Objectvity , Fairness, Honesty and Responsibility: They are important to Hold the competence, Confidentiality and INtegrity in the doing business. Proper Disclosure to all stakeholders. It help to stands differentiate from their competitiors. As dealing work with integriy bring confidence as well as competency in ones job.

2.   Stakeholders effected by are:

Stakeholders	Negatively
Users of Model 18 / Debtors	Look for other Vendor as cost will be increased.
Labours / Employee associated with Model 18	Salary may Get reduced, Lay off will be there as production will be less
Suppliers .	if Company continue with th eproduct then they may offer discount over the purchase of raw material or on Discontinuance they may casued Higher the cost of raw material / Not offer supply for lower in Order of raw material.
Stakeholders	Positively
Government	Proper Costing Reports Sent to government , Data will be shared for better understanding and developing plans for Manufacturing industry working in this Field.
Management	Proper Costing Report will help management whtehr to forgone the product line or contnue with the same.
Employee / Labours	Try to increase the efficeincy to make moere product so that cost will be reduced and Earnings can be increase.

3.    Ethical Obligation of Marcus is to provide:

- Correct Information

- Proper Management Costing of the Products Manufactured

- Recommendations over if the models are to be taken forward.

- recommendation on Lowering the ways of reducing the cost of the product.

All these are performed in ethical and in transaparent manner.

4. If MArcus go with hand on Hand with Ray following Standards are Voilated:

- Confidentiality : Before Implementing the costing system or management reports same is known to other members of the company as it will impact the morale level of them as well as hit the employee turnover in just a short span of time. Secondly Result are also publised by him before approved by the management.

- Integrity : Here Marcus is although has shown honesty with his work, but on manipulating by Ray he agrees for recalculation. This shows that he is not honest with his job responsibility and also with the organisation.

- Creditability : With the Recalcultion the project of Implemetation of ABC will not be seems as Worthwhile as it seems before. The way of agrreeing over re calcultion lost his creditability over the job responsibility as he has being Management Accountant of the company.

5. : MArcus Provided the benefit of ABC costing in the system , It will help to determine the cost which is not part of the MOdel 18 and being charged to that Model 18 , gets Highlighted.

Earleir Recommedn over searching new market areas where demand will be higher .

- Focus on accurate costing of the MOdel so that Overall margin is not understated due to wrong costing of Model 8, 12, and 18 Itself.

- Helpd to Reduce the unwanted Costing casuing to the Model like No. of Set up , BAtches required to produce etc as these are the areas where improvement can be done.

he may assure over the increase in efficeincy of performence of its laboure workforce.