Question

Explain why it is unethical to manipulate the allocation base on a case-by-case basis in order to meet profitability targets. For example, changing the allocation base from machine hours instead of maintenance hours, even though maintenance hours have been used for years and are a better reflection of consumption of maintenance costs.

Answer 1

STEP1: Basically there is a primary rule for allocation of expenses and overheads only based on standard basis of machine hours with machine hour rate what actually machine running towards the production,

But,There is lot of difference between allocation based on maintenance hours and machine hours

Maintenance hours are based several categories ,

1.capacity hours ,

2.Idle hours,

3.Activity based hours

Which shall not be manipulated to change the basic standard of allocation methods

If it changes disadvantages are;

. Wrong accounting of production hours,

. Wrong amounting based on wrong production hours,

. Adverse affects on profitability on each cost target,

. Adverse affects on costing allocation.