Curtis Rich, 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. Curtis’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, Curtis is approached by his friend Ed Gray, who is the production manager for the 18-horsepower Supercut model. Ed has heard from one of Curtis’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, Ed condemns the new cost system, whereupon Curtis explains the practice of activitybased costing and why it is more accurate than the company’s present system. Even more worried now, Ed begs Curtis, “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.” Curtis holds firm but agrees to recompute all his calculations for accuracy before submitting his costs to management. Instructions: (a) Who are the stakeholders in this situation? (b) What, if any, are the ethical considerations in this situation? (c) What are Curtis’s ethical obligations to the company? To his friend?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Curtis Rich, 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. Curtis’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, Curtis is
approached by his friend Ed Gray, who is the production manager for the 18-horsepower Supercut
model. Ed has heard from one of Curtis’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, Ed condemns the new cost system, whereupon Curtis explains the practice of activitybased
costing and why it is more accurate than the company’s present system. Even more worried now,
Ed begs Curtis, “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.” Curtis holds firm but agrees
to recompute all his calculations for accuracy before submitting his costs to management.
Instructions:
(a) Who are the stakeholders in this situation?
(b) What, if any, are the ethical considerations in this situation?
(c) What are Curtis’s ethical obligations to the company? To his friend?
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