Cost Accounting

5-12. “ABC systems only apply to manufacturing companies.” Do you agree? Explain.
No, when products have different demands on resources due to variances in volume, process steps,
batch size, or complexity, ABC systems work equally well for service companies like banks, railroads,
hospitals, and accounting firms, as well as merchandising enterprises like retailers and distributors.
5-13 "Activity-based learning"

5-40.

3. Comment on Duval’s concerns about the accuracy and limitations of ABC.

Clark's observations on ABC implementation are correct. Managers and management accountants
must balance the system's costs and benefits while building and implementing ABC systems. Adding
more tasks might make the system more difficult to understand and implement, but it would almost
certainly enhance the accuracy of cost data, which would help Plum make better decisions. Similarly,
employing inspection and setup hours as allocation grounds would likely result in more accurate cost
information, but it would raise measurement expenses.

4. How might Applewood find the ABC information helpful in managing its business?

The use of information from activity-based costing to make improvements in a company is known as
activity-based management (ABM). A company might, for example, alter product prices based on
updated cost data. Long-term, activity-based costing can help management make judgments about
the viability of product lines, distribution routes, marketing tactics, and other things. ABM identifies
areas where improvements can be made, such as the deletion or reduction of non-value-added
activities, the selection of lower-cost activities, the sharing of activities with other products, and the
elimination of waste. ABM is a holistic approach to management that focuses emphasis on activities
with the ultimate goal of continual improvement. ABM is a whole-company paradigm that focuses
on the company's strategic, tactical, and operational actions.

5. What should Susan Benzo do in response to Duval’s comments?

It is dishonest to disclose ABC expenses incorrectly in order to keep both the Mammoth and the
Maximum product lines. The precise Standards of Ethical Conduct for Management Accountants that
the management accountant should examine in assessing the scenario are stated below.

Competence

Clear reports, based on relevant and trustworthy data, should be prepared. It is against competence
requirements to prepare reports based on inaccurate expenses in order to keep product lines.
Jacobs' changing the ABC system with the express purpose of reporting different product cost
statistics that Clark prefers is unethical.
Integrity

The management accountant is responsible for avoiding actual or perceived conflicts of interest and
informing all relevant parties of any potential conflict. To appease Clark, the division president,
Jacobs may be inclined to modify the product cost numbers. This action, on the other hand, would
be in violation of the integrity responsibility. The management accountant is required by the
Standards of Ethical Conduct to communicate both positive and negative information.

Credibility

Information must be communicated fairly and objectively, and all relevant information must be
given, according to the principles of ethical conduct set forth by management accountants. Adjusting
product cost data to make both the Mammoth and Maximum lines appear profitable would be a
violation of the criterion of impartiality from the perspective of a management accountant. Jacobs
should tell Clark that the cost estimations for the product are correct. Jacobs should raise the issue
with one of Clark's supervisors. If Clark continues to insist on changing the product cost figures,
Jacobs should speak with one of Clark's supervisors. If there is still pressure to change product cost
numbers after taking all of these procedures, Jacobs might consider retiring from the company
rather than engaging in unethical action.