Research on Managerial Accounting Ethical Issues
While I was looking for an appropriate topic for research, I found an interesting publication, which fitted best to the subject (ethics in managerial accounting issues) and also included 5 good examples examples of possible problems associated with the field. The method of the study seemed unclear, especially considering the connection between the serial number of a dollar bill and the question to which the respondent had to answer in the end (in my work I will constantly refer back to the text, and in the end there will be a link to the document for review), though the examples given in the text seem to be really appropriate.
Here’s the info about these 5 issues and the first one given: “The five issues selected for study all come from decision situations appearing in managerial accounting textbooks. Two situations involve investment decisions, one entails a production decision, one deals with cost allocation, and one involves estimation judgment.
Each of these five issues is detailed in the Appendix and is explained in the remainder of this section.
Issue #1: Overproduction
The first issue relates to the proposition discussed in the previous section that managers’ decisions may be motivated by the desire to manipulate earnings. Specifically, Issue #1 involves the controversy over absorption costing (i.e., full costing) versus variable costing. Advocates of the latter state that with absorption costing, net income is susceptible to manipulation by managers because fixed overhead is a product cost and, therefore, unit costs can be lowered by merely increasing current production. This lowers cost of goods sold and, in turn, yields a higher current net income. As Zimmerman (2000, p. 496) states, “Managers rewarded on total profits calculated using absorption costing can increase reported profits by increasing production (if sales are held constant). A major criticism of absorption costing is that it creates incentives for managers to overproduce, thereby
Here’s the info about these 5 issues and the first one given: “The five issues selected for study all come from decision situations appearing in managerial accounting textbooks. Two situations involve investment decisions, one entails a production decision, one deals with cost allocation, and one involves estimation judgment.
Each of these five issues is detailed in the Appendix and is explained in the remainder of this section.
Issue #1: Overproduction
The first issue relates to the proposition discussed in the previous section that managers’ decisions may be motivated by the desire to manipulate earnings. Specifically, Issue #1 involves the controversy over absorption costing (i.e., full costing) versus variable costing. Advocates of the latter state that with absorption costing, net income is susceptible to manipulation by managers because fixed overhead is a product cost and, therefore, unit costs can be lowered by merely increasing current production. This lowers cost of goods sold and, in turn, yields a higher current net income. As Zimmerman (2000, p. 496) states, “Managers rewarded on total profits calculated using absorption costing can increase reported profits by increasing production (if sales are held constant). A major criticism of absorption costing is that it creates incentives for managers to overproduce, thereby
References: Schneider, Arnold. (2004). Ethical decision making on various managerial accounting issues. JAMAR Vol. 2 Number 2. http://en.wikipedia.org/wiki/Just_price