What are the benefits of standard costs and how do businesses set those standards?

What are the benefits of standard costs and how do businesses set those standards?

Week 5 DQs Ethical Issue 22-1

Required Readings

1. Chapter 22: The Master Budget and Responsibility Accounting

2. Chapter 23: Flexible Budgets and Standard Costs

Discussions

The Master Budget and Responsibility Accounting. From Chapter 22, Ethical Issue 22-1.

Ethical Issue 22-1

This case centers on the ethics of padding the budget—and whether the motivation for this action (personal gain or operational efficiency) makes a difference. 

1. What is the ethical issue?

2. What are my options?

Dunn’s alternatives include:

1. Continue      budgeting as in the past, i.e. putting more funds to the labor and      materials budget.
2. Talk about the      problem with Murry to explain his plan and find out whether company head      office condones the plan. Dunn must also attempt to assess Murry’s reasons      to increase the allocated sums.
3. In case Murry      gives an unsatisfying reply, Dunn might get in touch with company head      office.

3. What are the possible consequences?

Flexible Budgets and Standard Costs. What are the benefits of standard costs and how do businesses set those standards?