Case $3-18$: Ethics and the Manager

Explain how shaving $5\%$ off the estimated direct labor hours in the allocation base for the predetermined overhead rate boosts net operating income at the end of the yeat.

Shaving $54$ of the estimated direct labor hours would result in the lowering predetermined overhead rate. This would lead to the actual overhead costs exceeding the allocated overhead garhead conts.

Should Teri Ronsin go along with general manager's request? Terri Rigasin should not go along with the general manager's request because it is mislesding and unethical. It would create a false impression of the division's performance.$|$