Question

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 Blade runner, the 12-horsepower Quick cut, and the 18-horsepower Super cut—are manufactured. Marcus’s new product costs for these three models show that the company’s traditional costing system had been significantly under costing the 18-horsepower super cut. This was due primarily to the lower sales volume of the Super cut compared to the Blade runner and the Quick cut.

Before completing his analysis and reporting this result to management, Marcus is approached by his friend Ray Pon, who is the production manager for the 18-horsepower Super cut 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 Super cut 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.

(A) 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.

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

Answer 1

A.

The objective of cost accounting is to provide useful, accurate informa­tion for decision making by managers. Ray is coercing Marcus to massage the data to save the product line and, thus, Ray's job. Ray is advocating knowingly providing false data, deceiving management, and jeopardizing Marcus's job.

B.

Marcus is a management accountant employed by Hi-Power Mower Company. His first job responsibility is to his employer to: (1) communi­cate information fairly and objectively and (2) disclose fully all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, comments, and recommendations presented (see Appendix B, “Standards of Ethical Conduct for Management Accountants-Objectivity”). Marcus's obligation is to provide management with timely, truthful information.