John Smith, a junior accountant at Dynamics Engineering was working on cost allo
ID: 466042 • Letter: J
Question
John Smith, a junior accountant at Dynamics Engineering was working on cost allocations to completed jobs for the month. The cost sheet for GOVT360 showed 100 hours of direct labor. John's supervisor altered the job cost sheet to allow for 150 hours which increased both the direct labor and overhead cost for the job. When John asked about this, his supervisor stated that because this was a government job, it was billed at "cost +" so the more costs allocated to the job, the more profit Dynamics Engineering would make. She also stated that the excess hours would cover follow-up work on the job. Discuss Dynamics Engineering costing procedures. Why does overhead cost increase when direct labor hours increase? Discuss John Smith's responsibilities in light of the IMA's statement of professional conduct. What are his responsibilities with respect to the 4 standards of ethical conduct? What are the steps John should take in resolution of the ethical conflict (use the IMA's resolution of ethical conduct as your guide). How would you handle the situation?Explanation / Answer
Mr. John has violated the principle of Integrity and principle of professional behaviour. He is not supposed to agree the 50% increase in labour hours by his supervisor. Thus he clearly viaolated the principle of Integrity.
The overhead cost is increased when the direct labour cost is increased,:
When an employee is working , other than labour cost many other costs are indirectly associated with like electricity and other opeating expenses . That is the reason for increasing the Overhead cost.
According IMA standard John must not support any unethical issues in his firm , he must report and put an end to this act. He can use various safeguards given by IMA in these situations.
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