Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 56

Ethical Considerations A number of ethical issues arise in the design of management control systems. For example, such issues might arise when an individual’s performance relative to budget or standard cost affects the individual’s compensation or reward. Assume you are the cost accountant for a manufacturing firm. The reward system at your firm is such that the purchasing manager earns a financial reward when a significant favorable materials purchase-price variance is realized. Sup­pose, too, that this manager has an opportunity to get an extremely low price on raw materials that the manager knows are of substandard quality. Finally, assume that the purchasing manager believes that any problems attributable to the low-grade materials are not likely to surface until the product from which these materials is made has been in use for a while by consumers.

Required

1. Access the IMA’s Statement of Ethical Professional Practice (www.imanet.org). Which, if any, of the IMA standards contained in the statement are at issue in this case, either from the standpoint of the purchasing manager or of the cost accountant?

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2. Assume you are the cost accountant at the manufacturing plant where the preceding scenario takes place. According to the IMA’s Statement of Ethical Professional Practice, what are your obligations in this situation?

Step 1 of 3

Standard Cost System and Direct Cost Variance:

A standard cost system is a tool for arranging financial plans, overseeing and controlling expenses, and assessing cost the board execution. A standard costing framework includes assessing the necessary expenses of a creation cycle.

Direct Cost Variance (DCV), is the distinction between the standard expense for real creation and the real expense underway. There are two sorts of work differences. Work Rate Variance is the distinction between the standard expense and the genuine cost paid for the real number of hours.