Question

Job Costing and Ethics. Global Partners is a manufacturing company that produces parts both for inventory and to custom specifications. Parts produced for inventory are sold at prices determined in the market. Custom parts are sold at a price equal to production cost plus a profit based on the cost of production. Although custom parts are different from the standard parts produced for inventory, the same production processes, equipment, labor, and materials are used for both. The CFO is designing a new cost system and is debating between direct labor-hours and direct labor cost as a basis for applying overhead to products.

Required

a) Why (under what circumstances) would this choice lead to different costs being assigned to standard and custom products?

b) Would it be ethical to decide on the allocation basis by considering the effect of the choice on the relative costs? Explain.

Discuss this case using the steps for analyzing an ethical dilemma:

Find the facts involved in the case

Find the ethical issues and stakeholders

What values are questioned in this case?

What are the alternatives? ( list 3)

Evaluate the alternatives in terms of the values.

What are the consequences of the alternatives?

What is the correct course of action in this case based on your assessment above?

Answer 1

a. It will lead to difference only when there are different labour for both standard and custom production given different labour rates. Otherwise weighted labour rate and labour hours would be in propotion.

b. There is nothing unethical in it. Company is free to adopt costing approach for the customised buyers based upon their costing principals adopted(which should be same for all the customised buyers) and it can be different then standard buyers

Find the facts involved in the case

There is issue of allocation of cost to the standard and custom buyers

Find the ethical issues and stakeholders

Ethical issue is whether to follow uniform costing approach to all class of buyers or not. Stakeholders are buyers, investors, lenders, management

Please note that an expert is allowed to answer initial 4 questions only in case of multi questions posted at once. I hope this much helps, please repost for the rest. Thanks