Standard Costs and Ethics. Quincy Farms is a processor of items made from local farm products that are distributed to supermarkets. For many years, Quincy's products have had strong regional sales on the basis of brand recognition. However, other companies have begun marketing similar products in the area, and price competition has become increasingly important. Doug Gilbert, the company's controller, is planning to implement a standard cost system for Quincy and has gathered considerable information from his co-workers on production and materials requirements for Quincy's products. Gilbert believes that the use of standard costing will allow Quincy to improve cost control and make better pricing decisions.

Quincy's most popular product is strawberry jam. The jam is produced in tengallon batches, and each batch requires six quarts of good strawberries. The fresh strawberries are sorted by hand before entering the production process. Because of imperfections in the strawberries and normal spoilage, one quart of berries is discarded for every four quarts of acceptable berries. Three minutes of sorting is the standard direct labor time required to obtain one quart of acceptable strawberries. These strawberries are then processed with the other ingredients; processing requires 12 minutes of direct labor time per batch. After processing, the jam is packaged into quart containers. Gilbert has gathered the following information from Joe Adams, Quincy's cost accountant, relative to processing the strawberry jam.

- Quincy purchases strawberries at a cost of \(\$ 0.80\) per quart. All other ingredients cost a total of \(\$ 0.45\) per gallon.

- Direct labor is paid at the rate of \(\$ 9.00\) per hour.

- The total cost of materials and labor required to package the jam is \(\$ 0.38\) per quart.

Adams has a friend who owns a strawberry farm that has been losing money in recent years. Because of good crops, there has been an oversupply of strawberries; and prices have dropped to \(\$ 0.50\) per quart. Adams has arranged for Quincy to purchase strawberries from his friend and hopes that \(\$ 0.80\) per quart will put his friend's farm in the black.

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1. Develop the standard cost for the direct cost components of a ten-gallon batch of strawberry jam. For each direct cost component, the standard cost should identify the:

(a) Standard quantity.

(b) Standard rate.

(c) Standard cost per batch.

2. Citing the specific standards of competence, confidentiality, integrity, and/or objectivity from "Standards of Ethical Conduct for Management Accountants" found in Chapter 1, explain why Joe Adams' behavior regarding the cost information provided to Doug Gilbert is unethical.

(ICMA adapted)