Principles of Managerial Accounting - Assignment Example

Accounting ethics BTN 14-3 Decision making is an intuitive process and the effectiveness of decisions is based on the collection and assessment of vital information. Accounting professionals face ethical dilemmas while taking important decisions. Ethics relate to moral course of actions taken by individuals. While it is easy to distinguish some actions as ethical or unethical, there are others that pose difficulties in terms of deciding the right course of action for specific situations. Most ethical dilemmas centre on the short term consequences and the probability of undesirable consequences in the long run. Some decisions are taken to prevent worsening of situations in the short term, but these decisions may have negative implications in the long run. In the given case, the purchase of CD raw materials should be recorded in the current year expenses since the purchase is already complete on 15th November. Adjusting expenses and posting transactions as per accounting convenience is a regular practice within organizations. In this case the CFO’s instruction to post the expenses in the current year even though the material purchased will be used in the next financial year is justified since the purchase has already taken place in the current year. Hence the decision is morally justified and does not reflect unfair accounting practice. Moral and ethical decisions in such contexts do present challenges to accountants who are well aware of the unfair accounting practices. However, the primary challenge lies in the fact that opposing the CFO or senior management decision may have negative implications on accountant job security and employment conditions. Accounting frameworks and standards provide the essential parameters for fair practice. Any decision that goes against these standards or code of ethics for accountants must be opposed on grounds of possible negative implications in the long run. BTN 15-3 The Finance Officer Internal Memo – overhead allocation method applied in government bids The job allocation process of the company involves allotting jobs to contractors on the basis of low cost and high quality. The two different categories of contractors involved in this process are the general contractors and the government contractors. It has been noticed that the bidding price of the government contractors involve a certain percentage of overhead that is added to the cost of production. The profit percentage is thus specified and this leverages the government contractors’ position in terms of distinct cost plus profits for jobs allocated. The general contractors thus find themselves at a disadvantage since they have to compete with the government contractor prices and quote lower prices to get the contract. The government contractors have the benefit of earning surplus profits that is not available to the general contractors. The disparity in overhead allocation process reflects unfair practice. On the one hand the client is forced to pay higher prices for the same goods or services while on the other the contractor earns a distinct percentage of profit above the production costs. The accountants are forced to adjust overhead costs to accommodate profits for the government contractors. This results in inappropriate accounting practices that reflects on the company’s reputation and has the potential of damaging relationship with the clients in the long run. It must be noted in this context that the role of accountants is to protect the company reputation and financial integrity. Their duties and responsibilities do not involve working in the interests of a group of individuals or executives. Such practices are against the code of conduct of accounting professionals. BTN 17-3 Activity based costing system offers an accurate method of finding out the costing at each stage of operation. It enables the managers to identify the areas of constant improvement within existing work processes and achieve higher degree of efficiency in terms of cost of production. An examination of existing work processes in the factory reveals that some of the activities are redundant and hence can be eliminated to reduce the total cost of operation. While declaring the activities as redundant will help in reducing costs, it will also affect the employment of one or two employees engaged in these activities. Since these activities are not contributing to value addition of the process, it is suggested that these activities be declared redundant. It is the accountant’s responsibility to report the facts accurately for improved decision making process. The accountant report will hence include these observations and provide a detailed explanation of why the redundancy is justified and how it can contribute to operational efficiency. Accounting professionals need to maintain a high level of integrity and responsibility in providing clear and precise information related to company accounts. As part of this professional code of ethics, the report should also provide possible alternatives for the affected employees in terms of employment in some other department or shifts. While the ultimate decision making powers rest on higher management, the facts and information provided by the accountant prove the base for effective decision making process. The report hence must reflect vital facts and information without any bias. This is a significant aspect defining the ethical principles of accounting professionals. BTN 18-3 Labor costs in the service industry are difficult to estimate on account of various practical limitations including individual work efficiency and the nature of work involved. Auto repair service centers face similar difficulties in estimating the time and cost involved in repair jobs. Since the time required completing a repair work is directly dependant on the nature of repair, the extent of problems, and the efficiency of the labor an average cost is defined as per industry standard to avoid ambiguity in customer billing. The survey undertaken for the purpose of finding out the average time required to complete a particular repair job will take into account some key parameters related to labor output and performance indicators. Labor analysis will be based on data related to quality parameters, average time required to complete a repair work, expert service requirement and average billing rates of other repair centers in the vicinity. The ethical dilemma in this practice arises on the context of billing customers for extra hours instead of the actual time in which the work was completed. However, this is a minor concern considering that the average repair time is estimated as 2 hours or more depending on the extent of work involved. Man-hours are calculated on industry standards and hence customers are well informed of the pricing of the repair work. Expert mechanics may complete the work in less time but this is categorized as operational efficiency and hence should not affect the repair charges. Moreover, there is practical difficulty involved in the process of billing for actual time worked. The charges will vary in each case that may raise customer queries. The report will address these challenges and implications. BTN 20-3 The budgeting process is vital for organization’s planning and decision making activities. The use it or lose it principle poses practical difficulties to organizations in terms of under-utilized resources. To avoid losing the budgeted dollars, department heads responsible for preparing the budget must plan ahead. The figures and goals must be realistic and managers must verify the figures before finalizing it and sending it for approval. The government and not-for-profit organizations must consider that planning ahead is vital for implementing realistic budgets that do not show inflated or deflated figures. Moreover, the organization must indulge in researching its goals and priorities that it wants to fulfill in the coming year. Budgets should have foresightedness in terms of goals and objectives, resource allocation requirements and key cost aspects for increased accuracy and relevancy. Tools and frameworks such as activity based budgeting system enables the managers to plan and identify key activities that provide the base for defining resource requirements and allocating budgets for each activity. Since budgeting activity is futuristic in nature, the effectiveness of the process depends on the extent to which the managers are able to visualize scope and opportunities, identify key goals and activities, and evaluate the cost of each activity. Evaluation of budgets must involve a comparative assessment of past performance and expected performance of the organization. Works cited Wild, J.J., Shaw, K.W., and Chiapetta, B. ‘Financial and Managerial Accounting: Information for Decisions.’ 4th Edition. McGraw-Hill: Irwin. 2009. Print. Read More