During Week Three You Will Be Reading About Applying Overhea ✓ Solved

During Week Three You Will Be Reading About Applying Overhead Costs

During week three you will be reading about applying overhead costs to a job or batch. Problem 3-54 on page 126 in your textbook has a great ethical issue around the under application of manufacturing overhead. Please read the scenario presented in that problem. Then in your post answer the two questions posed. Question #1 asks you for each of the three alternative courses of action that Jackson is considering, explain whether or not the action is appropriate. For question #2 assume that Jackson again approaches Brown to make the necessary adjustments and is unsuccessful. Describe the steps that Jackson should take in proceeding to resolve this situation.

Paper For Above Instructions

The application of overhead costs in manufacturing is a critical aspect of accounting and financial reporting, as it can significantly affect the cost of goods sold and consequently the profitability of a company. Problem 3-54 from the textbook presents a scenario where Jackson faces an ethical dilemma regarding the under-application of manufacturing overhead. This paper will explore each of the three alternative courses of action that Jackson is considering and evaluate their appropriateness. Furthermore, it will outline the steps Jackson should take if his attempts to resolve the issue with Brown are unsuccessful.

Evaluation of Jackson's Alternative Courses of Action

In the given scenario, Jackson has three potential courses of action to consider regarding the under-application of manufacturing overhead:

  1. Ignore the Under-Application: One option for Jackson would be to simply ignore the issue of under-application and proceed as if it did not exist. While this may seem like the easiest course of action, it is not appropriate. Ignoring the under-application could lead to misleading financial statements, misrepresenting the cost of goods sold, and impairing decision-making processes for management and stakeholders. Ethical accounting practices dictate that all expenses should be accurately recorded to reflect true financial health.
  2. Adjust the Financial Statements: Another alternative is for Jackson to adjust the financial statements to reflect the correct allocation of overhead costs. This action would be appropriate if done transparently and with the proper authorization. Making the necessary adjustments ensures that the company's financial statements adhere to Generally Accepted Accounting Principles (GAAP) and provide accurate information to stakeholders. However, Jackson must consider how these adjustments are communicated and attributed to avoid potential backlash from management.
  3. Consult with Management: Jackson could also choose to consult with management to discuss the issue of under-application and seek guidance on how to proceed. This approach is not only appropriate but also embodies an ethical practice of collaboration and transparency. By engaging with management, Jackson can highlight the implications of the under-application on the financial health of the company and work together to determine the best course of action. This collaborative path also helps in fostering a culture of ethical decision-making within the organization.

Recommended Steps if Jackson's Initial Approach Fails

If Jackson approaches Brown and is unsuccessful in getting the necessary adjustments made, he must take further steps to ensure the situation is resolved appropriately. In such a case, Jackson should follow these steps:

  1. Document the Conversations: Jackson should keep a detailed record of all communications with Brown regarding the request for adjustments. This includes saving emails, meeting notes, and any verbal agreements. Documentation will provide a clear trail of attempts to address the issue and is essential for accountability.
  2. Seek Higher Management Intervention: If discussions with Brown do not yield results, Jackson should escalate the issue to a higher level of management. He should present the documented conversations and clearly articulate the impact of the under-application on the business's financial outlook. It is crucial to present a fact-based case that supports his position.
  3. Consult the Internal Audit or Compliance Team: If higher management still does not address the issue, Jackson should consider involving the internal audit or compliance team. These professionals can provide an objective assessment of the situation, as well as guidance on ethical and legal obligations regarding financial reporting.
  4. Review Organizational Policies: Jackson should familiarize himself with relevant organizational policies regarding financial reporting, compliance, and ethics. Understanding these guidelines can inform his next steps and help him advocate for appropriate actions based on company standards.
  5. Consider Whistleblower Protections: If Jackson believes that the issue of under-application is being ignored for unethical reasons, he may need to consider the possibility of whistleblower protections available within the organization or under law. Reporting unethical practices may be necessary to protect the integrity of financial reporting.

In conclusion, the ethical implications of applying overhead costs cannot be underestimated. Jackson's considerations of alternative courses of action highlight the importance of accountability and transparency in financial practices. By following the recommended steps, Jackson can effectively advocate for necessary adjustments, ensuring compliance with ethical standards and maintaining the company's financial integrity.

References

  • Horngren, C. T., Sundem, G. L., & Stratton, W. O. (2013). Introduction to Management Accounting. Pearson.
  • Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2020). Financial Accounting. Wiley.
  • Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting. McGraw-Hill Education.
  • Seetharaman, A. (2016). Application of Costing Methods to Improve the Financial Performance of Manufacturing Companies. Journal of Business and Management, 18(9), 64-70.
  • Ittner, C. D., & Larcker, D. F. (1995). Total Quality Management and the Choice of Accounting Performance Measures. Accounting Review, 70(2), 262-279.
  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial Accounting. Wiley.
  • McKenzie, L. (2017). The Importance of Ethical Standards in Accounting. Business Ethics Quarterly, 27(1), 45-68.
  • Forgionne, G. A. (2013). Ethics in Accounting: The Importance of Integrity. International Journal of Business and Management, 8(12), 45-52.
  • American Institute of Certified Public Accountants (AICPA). (2020). Code of Professional Conduct. AICPA. Retrieved from [AICPA website]
  • Institute of Management Accountants (IMA). (2017). Statement of Ethical Professional Practice. IMA. Retrieved from [IMA website]

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