Managerial Accounting

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Ethics of Absorption Costing: Unethical Abuse


The comments below were listed in the production manager performance review.

Which comments could signal an unethical abuse of absorption costing method?

(highlight each comment that signals a potential ethical abuse, do not highlight capitalized titles)

Highlight Answer(s) Below

PRODUCTION LEVELS: Production levels are nearly double budgeted levels STANDARD COSTS: Direct labor costs per hour are stable Direct labor efficiency is at standard levels Direct materials costs are higher than standard Direct material use is lower than standard QUALITY & TURNOVER: Labor turnover is steady at 5% (no change from prior year) Quality measures are up slightly, generally due to higher quality materials PER UNIT COSTS: Variable cost per unit is up slightly Total fixed costs are slightly below budgeted levels. Fixed costs per unit are half historical levels.