Aerospace Inc is a manufacturer of airplane parts and engines for a variety of military as well as civilian aircraft. Though there are many commercial customers for most of the company's products, the U.S. govemment is the only buyer of the firm's rocket engines.

Because AeroSpace is the sole provider of the engines, the govemment buys the engines at a price equal to cost plus a percent markup.

The cost system in place at AeroSpace is under review by top management, with the objective of developing a system which will provide more accurate and more timely cost management infonmation.

At the cun-ent phase of the study of the cost system, it is now apparent that the new system, while more accurate and timely, will result in lower costs being assigned to the rocket engines and higher costs being assigned to the fimn's other products. Apparently, the current (less accurate) cost system has over-costed the engines and under-costed the other products. On hearing of this, top management has decided to scrap the plans for the new cost system, because the rocket engine business with the govemment is a significant part of Aerospace's business, and the reduced cost will reduce the price and thus the profits for this part of Aerospace's business.

REQUIRED:

As a staff cost analyst on the cost review project, how do you see your responsibility when you hear of the decision of top management to cancel the plans for the new cost system?