What are the benefits of standard costs and how do businesses set those standards?
Week 5 DQs Ethical Issue 22-1
1. Chapter 22: The Master Budget and Responsibility Accounting
2. Chapter 23: Flexible Budgets and Standard Costs
The Master Budget and Responsibility Accounting. From Chapter 22, Ethical Issue 22-1.
Ethical Issue 22-1
This case centers on the ethics of padding the budget—and whether the motivation for this action (personal gain or operational efficiency) makes a difference.
- What is the ethical issue?
2. What are my options?
Dunn’s alternatives include:
- Continue budgeting as in the past, i.e. putting more funds to the labor and materials budget.
- Talk about the problem with Murry to explain his plan and find out whether company head office condones the plan. Dunn must also attempt to assess Murry’s reasons to increase the allocated sums.
- In case Murry gives an unsatisfying reply, Dunn might get in touch with company head office.
3. What are the possible consequences?
Flexible Budgets and Standard Costs. What are the benefits of standard costs and how do businesses set those standards?