Question 1
You are a management accountant at a manufacturing company that produces electronic components. Your company uses a method of cost allocation to allocate manufacturing overhead costs to different products based on direct labour hours. However, you have recently discovered that the direct labour hours used for cost allocation do not accurately reflect the actual consumption of manufacturing overhead resources, as some products require more machine hours and other resources than others.
The companys management is pressuring you to continue using the current cost allocation method because it results in higher profits for certain products that are favoured by top management. The company uses these profitability figures to make pricing, product prioritization, and resource allocation decisions. However, you believe that this practice is misleading and unethical because it distorts the actual costs of different products and may result in unfair treatment of certain products or customers.
Required -
As the management accountant responsible for cost allocation, you face an ethical dilemma. What will you do?