Ethics and professional conduct in business The controller of Tru Con Global Sys

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Ethics and professional conduct in business
The controller of Tru Con Global Systems Inc. decided a new costing system based on tracing the cost of activities to products. The controller was able to measure post-manufacturing activities, such as selling, promotional, and distribution activities, and allocate these activities to products in order to have a more complete view or the company's product costs. This effort produced better strategic information about the relative information about the relative profitability of product lines. In addition, the controller used the same product cost information for inventory valuation on the financial statements. Surprisingly, the controller discovered that the company's reported net income was larger under this scheme than under the traditional costing aproach.
Why was the net I come larger, and how would you react to the controller's action?
Answer within 100 to 140 words please. Ethics and professional conduct in business
The controller of Tru Con Global Systems Inc. decided a new costing system based on tracing the cost of activities to products. The controller was able to measure post-manufacturing activities, such as selling, promotional, and distribution activities, and allocate these activities to products in order to have a more complete view or the company's product costs. This effort produced better strategic information about the relative information about the relative profitability of product lines. In addition, the controller used the same product cost information for inventory valuation on the financial statements. Surprisingly, the controller discovered that the company's reported net income was larger under this scheme than under the traditional costing aproach.
Why was the net I come larger, and how would you react to the controller's action?
Answer within 100 to 140 words please.
The controller of Tru Con Global Systems Inc. decided a new costing system based on tracing the cost of activities to products. The controller was able to measure post-manufacturing activities, such as selling, promotional, and distribution activities, and allocate these activities to products in order to have a more complete view or the company's product costs. This effort produced better strategic information about the relative information about the relative profitability of product lines. In addition, the controller used the same product cost information for inventory valuation on the financial statements. Surprisingly, the controller discovered that the company's reported net income was larger under this scheme than under the traditional costing aproach.
Why was the net I come larger, and how would you react to the controller's action?
Answer within 100 to 140 words please.

Explanation / Answer

Activity based costing is more accurate, compared to the single plant wide factory overhead rate method. The costing method employed by the Controller is based on this approach. It leads to several benefits such as:

1. In ABC managres focus attention on activities rather than products because activities in various departments may be combined and costs of similar activities ascertanied. e.g. quality control, handling of materials, repairs to machines, etc.

2. Cost are identified with activities and then allocated to products or services, based on appropriate cost drivers. So more accurate product/service costs are obtained. Since overhead or indirect costs occupies a significant proportion of the total costs of the firm, the overall impact of allocation of indirect costs to products/services more accurately is significant.

3. Managers manage activities and not products. Chamge in activities lead to change in costs. Therefore, if the activities are managed well, costs will fall and resulting products will be more competitive.

4. TO manage activities better and to make wiser economic decisions, managers need to identify the relationships of activities and costs in a more detailed and accurate manner.

5. ABC highlights problem areas that deserve management's attention and more detailed analysis.

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