Assignment: Ethics and ABM1

Marcus Lim, the cost accountant for Hi-Power Mower Company, recently installed activitybased 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 those 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.

Instructions

(a) Discuss the significance of ethics in managerial accounting. Why is it important? Structure your response in terms of the principles in Chapter 1 Exhibit 1-6 (not the standards) that managerial accountants agree to uphold as stated in the IMA Statement of Ethical Professional Practice that we discussed in class. Be sure to include all 4 principles.

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

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

(d) 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.