Question: The Southwest Division of Texcaliber Inc uses absorption costing for

The Southwest Division of Texcaliber Inc. uses absorption costing for profit reporting. The general manager of the Southwest Division is concerned about meeting the income objectives of the division. At the beginning of the reporting period, the division had an adequate supply of inventory. The general manager has decided to increase production of goods in the plant in order to allocate fixed manufacturing cost over a greater number of units. Unfortunately, the increased production cannot be sold and will increase the inventory. However, the impact on earnings will be positive because the lower cost per unit will be matched against sales. The general manager has come to Aston Melon, the controller, to determine exactly how much additional production is required in order to increase net income enough to meet the division’s profit objectives. Aston analyzes the data and determines that the inventory will need to be increased by 30% in order to absorb enough fixed costs and meet the income objective. Aston reports this information to the division manager.
Discuss whether Aston is acting in an ethical manner.

Sale on SolutionInn
  • CreatedJune 27, 2014
  • Files Included
Post your question