Question

Job Costing and Ethics. Global Partners is a manufacturing company that produces parts both for inventory and to custom specifications. Parts produced for inventory are sold at prices determined in the market. Custom parts are sold at a price equal to production cost plus a profit based on the cost of production. Although custom parts are different from the standard parts produced for inventory, the same production processes, equipment, labor, and materials are used for both. The CFO is designing a new cost system and is debating between direct labor-hours and direct labor cost as a basis for applying overhead to products. Required Why (under what circumstances) would this choice lead to different costs being assigned to standard and custom products? Would it be ethical to decide on the allocation basis by considering the effect of the choice on the relative costs? Explain.

Answer 1

A) choosing between direct labour costa and hours asa a basis for applying overhead to products would differ only if the employeed were lpaid different salaries as per their roles in the organisation.

if all employees were paid the same rate , then dorect labor cost wouyld be directly proportional to dorect labour hours and the both bases would get the same result

B)

It would not to be necessarilily ethical to decide on the alloaction basis by consideration the effect of the choice on the relative costs.

The basis would be chooosen solely with the biggest gain to the company

Further ,a company could deceive a customer by overstating the cost of the job and thus getting a higfher pay from the customer