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in one page please answer the following questions 1 question what ethical issues do 640621

In one page please answer the following questions.

(1) Question: What ethical issues do you see in this scenario? How would you resolve them?

(2) What do you think is going on here? How would you evaluate the company’s year 2 performance? Using variable costing, what would operating income be for year 1? For year 2? (Assume that all selling and administrative costs are committed and unchanged.) Compare those results with the absorption costing statements. Comment on the ethical issues in this scenario.


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Question (1) Ethical Issues Surrounding Activity Based Costing* Xavier Auto Parts, Inc. manufactures a wide range of auto parts, which it sells to auto manufacturers, primarily in the United States and Canada.* The company’s Engine Parts Division operated three plants in South Carolina and specialized in engine parts. The division’s Charlotte plant manufactured some 6,500 different parts. Trouble Brewing Both the Engine Parts Division, as well as the Charlotte plant in particular, had shown satisfactory profitability for the past 20 years. In 2009, however, the Charlotte plant’s profitability took a sharp downward turn, in spite of rising sales. The trend continued through the next several years. Management at both the division and plant levels took note of the plant’s declining profits and held several strategy meetings as a result. Division Strategy The Engine Parts Division had always positioned itself as the industry’s full line producer. If a customer wanted a product, the division would make it. Although occasionally very low volume products were discontinued due to lack of consistent orders, the division’s product line remained a full line of engine parts. As part of its strategy review, division management did two things. First, an activity based costing study was initiated in the Charlotte plant in order to give management a better picture of each product line’s profitability. Second, a high level review was undertaken to determine whether the full line producer strategy continued to make sense. Activity based Costing An ABC project team was formed, and a successful pilot study was conducted on two of the Charlotte plant’s product lines. Then the ABC project was extended to the entire Charlotte operation. Management was astonished to find that fully a quarter of the plant’s products were selling at a loss. Moreover, the ABC project highlighted the extent of the product line proliferation at the Charlotte plant. It turned out that in many instances,…

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