Marcus Lim, the cost accountant for Hi-Power Mower Company, recently installed activity-based costing at Hi-Powers St. Louis lawn tractor (riding mower) plant where three models, - the 8-horsepower Bladerunner, the 12-horsepower Quickcut, and the 18-horsepwoer Supercut are manufactured. Marcuss new product costs for those three models show that the companys traditional costing system had been significantly undercosting the 18-horsepower Supercut. This was due primarily to the lower sales volume of the Supercut compared to the Bladerunner and the Quickcut.

Before completing his analysis and reporting these results to management, Marcus is approached by his friend Ray Pon, who is the production manager for the 18-horsepower Supercut model. Ray has heard from one of Marcuss staff about the new product costs and is upset and worried for his job because the new costs show the Supercut to be losing, rather than making, money.

At First Ray condemns the new cost system, whereupon Marcus explains the practice of activity-based costing and why it is more accurate than the companys present system. Even more worried now, Ray begs Marcus, Massage the figures just enough to save the line from being discontinued. You dont want me to lose my job do you? Anyway, nobody will know.

Marcus holds firm but agrees to re-computed all his calculations for accuracy before submitting his costs to management.

Requirements: Study the IMA Statement of Ethical Professional Practice (link in blackboard) and answer the following:

1. Discuss the significance of ethics in managerial accounting. Why is it important? Structure your response in terms of the principles (not the standards) that managerial accountants agree to uphold as stated in the IMA Statement of Ethical Professional Practice; be sure to include all four principles.

2. Who are the stakeholders that are affected by Marcus actions? Be specific and indicate how they are impacted (positively and/or negatively) and why.

3. Using the IMA Statement of Ethical Professional Practice, identify the standards (not to be confused with the principles) that Marcus would violate should he go along with Rays request. Be specific and explain why the standard would be violated.

4. How could Marcus help his friend yet still uphold his ethical obligations?