The machinery building factory (MBF) of Packages, Ltd., makes machines used in packaging product. These machines are sold by Packages’ regional office as a complete solution: that is, the regional office will sell not only the containers but also the equipment required to fill product. MBF transfers its machines to the regional packaging units at variable cost plus 50% toward recovery of overhead. Corporate management strongly believes that a full-cost-based price would create needless complications in terms of overhead allocations. Moreover, the 50% rate makes sure that the MBF keeps a tight lid on overhead costs.
Despite heroic efforts, the MBF’s management cannot contain overhead to be 50% or less of variable costs. The actual ratio for the most recent year was 0.53, and management knows that another subpar year would jeopardize their jobs. The division manager of the MBF approaches you, the division controller, to explore possible actions. She believes that the current system for classifying costs into fixed and variable is broken. She offers some suggestions that would reclassify some costs from the “fixed’ to the “variable” category. She argues that this classification is just a semantic issue as ALL costs are variable in the long term.

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What should you do? Be sure to consider the IMA’s ethical guidelines in your answer.