Chapter 10, Problem 32E

Activity-Based Costing of Customers: Ethical Issues

Red’s Lumber hired a consultant to update its system for reporting the cost of customers. The consultant showed Red an analysis that indicates that customer support costs are significantly higher for customers who order on weekends than for those who order during the week.

Required

1. a.         What pricing decisions might Red make based on the consultant’s information?
2. b.         Would these be ethical? Why or why not?
3. c.          The consultant comes back to Red’s office and explains that he made a mistake in the analysis. The relation is actually between cost of customer support and the customer’s gender. Does this affect your answers to requirements (a) and (b)?