Rita Lane is the accountant for Outdoor Living, a manufacturer of outdoor furniture that is sold through specialty stores and Internet companies. Lane is responsible for reviewing the standard costs. While reviewing the standards for the coming year, two ethical issues arise.
Outdoor Living’s management is starting a continuous improvement policy that requires a 10% reduction in standard costs each year for the next three years. Dan Jacobs, manufacturing foreman of the Teak furniture line, asks Lane to set loose standard costs this year before the continuous improvement policy is implemented. Jacobs argues that there is no other way to meet the tightening standards while maintaining the high quality of the Teak line.
Requirements
1. Use the IMA’s ethical guidelines (https://www.imanet.org/PDFs/Statement%20of%20 Ethics_web.pdf) to identify the ethical dilemma in each situation.
2. Identify the relevant factors in each situation and suggest what Lane should recommend to the controller.