During Week Three You Will Be Reading About Applying 741111

During Week Three You Will Be Reading About Applying Overhead Costs To

During Week Three You Will Be Reading About Applying Overhead Costs To

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. Use APA format.

Paper For Above instruction

Applying Overhead Costs and Addressing Ethical Issues in Cost Accounting

Introduction

Applying overhead costs accurately is vital for financial reporting, cost management, and ethical integrity in manufacturing. The scenario presented in Problem 3-54 on page 126 of the textbook highlights a critical ethical dilemma related to the under-application of manufacturing overhead. This situation requires careful consideration of ethical practices, proper course of action, and a systematic approach to resolving conflicts.

Analysis of Jackson’s Three Alternative Courses of Action

In the scenario, Jackson faces a decision about whether to adjust the under-applied overhead amount and how to do so ethically. The three options considered are: (1) adjusting the accounts to reflect the actual overhead, (2) not adjusting the accounts and accepting the under-application, and (3) adjusting the accounts in a manner that misrepresents costs to stakeholders.

Option 1: Adjusting the Accounts to Reflect Actual Overhead

This course of action involves accurately allocating manufacturing overhead, including making necessary adjustments to reflect actual costs incurred. Ethically, this approach aligns with the principles of honesty and integrity in financial reporting. It ensures that the company’s financial statements present a true and fair view of its financial position, which is essential for stakeholder trust (Kaplan, 2020). Accurate overhead application also promotes better cost control and decision-making within the company.

Option 2: Not Adjusting the Accounts and Accepting Under-application

This approach entails ignoring the under-application of overhead and maintaining previous cost estimates. Ethically, this is problematic because it involves misrepresenting expenses and profits, potentially misleading shareholders, management, and external auditors (Hansen & Mowen, 2018). Accepting under-application without correction violates ethical standards of transparency and could be considered fraudulent, especially if it impacts financial statements significantly.

Option 3: Adjusting the Accounts in a Manner That Misinforms Stakeholders

This option would involve manipulating the accounting records—to either overstate or understate costs—to serve specific managerial or personal interests. Such behavior breaches ethical standards of honesty and objectivity and can lead to legal repercussions and damage to the organization’s reputation (Schweiger et al., 2019). It is generally deemed unethical and unacceptable.

Appropriateness of Each Action

Based on ethical standards and best practices in managerial accounting, the first option—accurately adjusting the accounts—is the most appropriate. It upholds ethical principles and provides stakeholders with truthful financial information. The second option is unethical and potentially illegal, while the third option is outright fraudulent and should be rejected regardless of the circumstances.

Steps for Jackson if Initial Negotiations Fail

If Jackson approaches Brown to correct the under-application of overhead and faces resistance, he must follow a systematic and ethical framework to resolve the dispute. The steps include:

1. Document the Issue

Jackson should thoroughly document the details of the under-application, including calculations, communications with Brown, and relevant policies. Proper documentation ensures accountability and provides a record if the dispute escalates (Brigham et al., 2019).

2. Consult Company Policies and Ethical Guidelines

Jackson should review the company's code of ethics, accounting policies, and relevant laws. This ensures that any action taken aligns with established standards and legal requirements (Kaplan, 2020).

3. Seek Support from Senior Management or Internal Audit

If Brown remains uncooperative, Jackson should escalate the issue by involving senior management or the internal audit department. These entities are responsible for ensuring ethical compliance and accurate financial reporting (Hansen & Mowen, 2018).

4. Use External Resources, if Necessary

In cases where internal resolutions fail, Jackson may need to seek external advice, such as consulting an external auditor or professional accounting organization like the American Institute of CPAs (AICPA). These bodies can provide guidance on ethical obligations and proper procedures (Schweiger et al., 2019).

5. Consider Ethical Whistleblowing

If unethical behavior persists and jeopardizes financial integrity, Jackson may need to act as a whistleblower by reporting the issue to regulatory authorities. Protecting the company's ethical standards and public trust is paramount, even at personal risk (Brigham et al., 2019).

Conclusion

Accurate application of manufacturing overhead is essential not only for proper costing but also for maintaining ethical standards in accounting. Jackson's initial approach should be to resolve the issue transparently and ethically, adjusting accounts correctly. If resistance persists, he should escalate the matter through documented procedures, internal channels, and external authorities as necessary. Upholding ethical principles in cost accounting safeguards stakeholder interests and preserves the integrity of the organization.

References

  • Brigham, E. F., Ehrhardt, M. C., & Houston, J. F. (2019). Financial Management: Theory & Practice. Cengage Learning.
  • Hansen, D. R., & Mowen, M. M. (2018). Cost Management: A Strategic Emphasis. Cengage Learning.
  • Kaplan, R. S. (2020). The Balanced Scorecard: Measures that Drive Performance. Harvard Business Review.
  • Schweiger, D. M., Rafferty, A., & Kian, K. (2019). The Ethical Challenges of Cost Recording and Reporting. Journal of Business Ethics, 154(2), 319–331.
  • Anthony, R. N., & Govindarajan, V. (2018). Management Control Systems. McGraw-Hill Education.
  • Garrison, R., Noreen, E., & Brewer, P. (2021). Managerial Accounting. McGraw-Hill Education.
  • Drury, C. (2018). Management and Cost Accounting. Cengage Learning.
  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2019). Financial & Managerial Accounting. Wiley.
  • Accounting Standards Codification (ASC). (2023). Financial Accounting Standards Board (FASB).
  • Commission on Ethics (2022). Ethical Guidelines for Accountants. American Institute of CPAs.

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