Chapter 4, Problem 4.4BYP

Curtis Rich, the cost accountant for Hi-Power Mower Company, recently installed activity- based costing at Hi-Power's St. Louis lawn tractor (riding mower) plant where three models—the 8-horsepower Bladerunner, the 12-horsepower Quickcut, and the 18-horsepower Supercut—are man­ufactured. Curtis's new product costs for these three models show that the company's traditional costing system had been significantly undercosting the 18-horsepower Supercut. This was due pri­marily to the lower sales volume of the Supercut compared to the Bladerunner and the Quickcut.

Before completing his analysis and reporting these results to management. Curtis is approached by his friend Ed Gray, who is the production manager for the 18-horsepower Supercut model. Ed has heard from one of Curtis's staff about the new product costs and is upset and worried for his job because the new costs show the Supercut to be losing, rather than making, money.

At first, Ed condemns the new cost system, where upon Curtis explains the practice of activity-based costing and why it is more accurate than the company's present system. Even more worried now, Ed begs Curtis, “Massage the figures just enough to save the line from being discontinued. You don't want me to lose my job, do you? Anyway, nobody will know.”

Curtis holds firm but agrees to recompute all his calculations for accuracy before submitting his costs to management.

Instructions

(a) Who are the stakeholders in this situation?

(b) What, if any. are the ethical considerations in this situation?

(c) What are Curtis's ethical obligations to the company? To his friend?