ABC COSTING

1. Assume you own a business that makes two complementary products for which you allocated manufacturing overhead proportionally. A competitor is trying to undercut your price for one of the products. How might ABC costing help you better compete with this pending threat?

HYBRID COSTING

2. While the text presents job and processing costing systems as virtual "polar extremes," there are many situations where it may be best for a company to use a hybrid system that combines attributes of both systems. Describe such a situation and discuss how the hybrid system may be better than either pure job or pure process systems.

3. WHAT ARE YOUR THOUGHTS ON AUTHOR'S CORNER COSTING ERRORS VIDEO

4. WHAT ARE YOUR THOUGHTS ON AUTHOR'S CORNER ALTERNATIVE COSTING METHODS VIDEO

Class Poll

5. What type of costing system does your current employer or a past employer use? Based on what you've learned regarding costing systems, do you think this is the best system for that organization to use?

Ethical Considerations

6. Marcus Lim, the cost accountant for Hi-Power Mower Company, recently installed activity-based costing 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 these three models show that the company's traditional costing system had been significantly undercosting 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.

What, if any, are the ethical considerations in this situation?

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