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

Exercise 60

Standard Costs and Ethics Ohio Apple Orchards (OAO), Inc., produces an organic, super-premium apple juice that it markets to specialty food outlets. OAO purchases its apples from a select group of farmers located in the Midwest. Recently, a graduate of the local university, Susanna Wu, joined the staff of OAO. Among Susanna’s first responsibilities was the change to develop and implement a standard costing system for OAO, this in response to competition arising from new and aggressive entrants to the organic foods market. Susanna discussed her task with the controller of the company, Mary Whitman, who indicated that unrefined apple juice would cost $1.50 per liter, the price she intended to pay her college pal, Bill O’Neal, who had since graduation been operating his own apple orchard at a loss. Because of favorable weather conditions during the most recent growing season, the price for comparable apple juice in the region has dropped to $1.10 per liter. Mary felt that the $1.50 price, if maintained throughout the current year, would be sufficient to make Bill’s operation profitable—at last.

Required Is Mary’s behavior regarding the cost information she provided to Susanna ethical? Support your answer by reference to the Institute of Management Accountant’s Statement of Ethical Professional Practice (www.imanet.org).

Step 1 of 2

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.