Why does the company's net income increase when the new costing system is applied? Is the controller acting ethically by using the new costing system for GAAP net income? Explain your answer.
The controller of Tri Con Global System Inc. has developed a new costing system that traces the cost of activities to products. The new system is able to measure post-manufacturing activities such as selling, promotional, and distribution activities, and allocates these activities to products in a manner that provides a more complete view of the company’s product costs. This system produces better strategic information about the relative profitability of products lines.
In the course of implementing the new costing system, the controller realized that the company’s current period GAAP net income would increase significantly if the new product cost information were used for
- Why does the company's net income increase when the new costing system is applied?
- Is the controller acting ethically by using the new costing system for GAAP net income? Explain your answer.
Generally accepted accounting principles (GAAP) refer to a common set of accounting principles, standards, and procedures issued by the Financial Accounting Standards Board (FASB).
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