Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 36

Ethics and Choice of Accounting Methods

Refer to Problem 9-35. Assume that you have prepared financial statements that show the operating profit for each of the two baskets manufactured by Bob's Baskets. Further assume that under the activity-based costing approach (requirement [a] in Problem 9-35), the deluxe baskets are less profitable than when you used only direct labor costs to allocate overhead costs (requirement [c] in Problem 9-35). You know that if management sees the activity-based costing results, the company will probably quit producing deluxe baskets. You have friends who work on the production and marketing of deluxe baskets and you believe that they would lose their jobs if management dropped this line.

Required

Should you show the activity-based costing results to management?