Accounting for Managers: Exploring Activity-Based Costing Case Study

This case study explores the application of Activity-Based Costing (ABC) in managerial accounting, focusing on ethical considerations and financial implications. It analyzes a scenario where a controller, Erin Jackson, is concerned about the accuracy of the traditional costing system and its impact on the company's profitability, specifically regarding the deluxe-model electric motor. The case examines the ethical dilemmas faced by Jackson when dealing with the production manager, Alan Tyler, who resists the implementation of ABC due to concerns about its potential impact on his department. The analysis highlights the ethical obligations of both the controller and the production manager, emphasizing the importance of accurate financial reporting and ethical decision-making. The study references Kim (2017) to provide a comprehensive understanding of ABC and its benefits. The case study showcases how the implementation of ABC can provide a more accurate cost picture for the business and the significance of ethical conduct in financial management.

Accounting for Managers
4/20/2019

Activity-Based Costing
1.
Yes, the controller i.e. Erin Jackson is being ethical as she was concerned about the benefits
and profits of the company, and was aware that the traditional product costing system of the
company had been under costing the deluxe-model electric motor by a huge amount. Even,
Erin was responsible enough to provide a detailed description regarding the principles of
activity-based costing and the ways it can provide more accurate product cost for the business
(Kim, 2017).
2.
No, the production management i.e. Alan Tyler was not acting ethically, as he was not atoll
ready to understand the loss that business of deluxe model is dealing with due to complying
with the traditional product costing system. Even, he tried to convince Erin to avoid
implementing ABC costing system by highlighting the profitability of the deluxe model in
the past years. Alan Tyler was worried that if Johnson will inform the president regarding the
ABC system and its profits, he will discontinue the deluxe model, which will even affect his
job. Hence, to get out of this situation, Alan asked Johnson to manipulate the numbers before
presenting the report to the president, which is not ethical.

3.
The ethical obligations of Jackson towards her president are to inform him about changes in
the costing system and adoption of activity-based costing. Besides this, she must represent
the true data of the deluxe model of the company.
Further, the ethical obligations of Johnson towards her friend are to convince him regarding
the benefits and accuracy of the activity-based costing and making him understand the losses
company has to bear by continuing with the traditional product costing system.

References
Kim, Y.W. (2017). Activity Based Costing for Construction Companies 1st ed. U.K: John
Wiley & Sons.