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DBU Systems manufactures testing equipment for the communications industry. In developing a new device for maritime communication, the design group has estimated the following unit
DBU Systems manufactures testing equipment for the communications industry. In developing a new device for maritime communication, the design group has estimated the following unit costs.
Metal $
Plastic
Direct Labor Hours
Direct labor at DBU Systems earns $ per hour. Overhead is estimated for new products at percent of direct labor. DBU Systems has target operating margin of percent as a percentage of costs on this type of product. The marketing team has estimated that a price of $ is expected for the device.
The product manager tells you that the company is considering changing the way it estimates overhead. The alternative approach will estimate overhead at percent of direct material cost. She suggests that the alternative be used for this product, because "the company will probably change the method soon."
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What are the issues, ethical and otherwise, that arise with the product manager's suggestion?
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