Blackhawk Technical College Cost Classification and Warehousing Cost Discussion: Accounting Answers 2021
Blackhawk Technical College Cost Classification and Warehousing Cost Discussion
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Ethics Case ? Cost Classification
Scott Hopkins, the new Plant Manager of ABC Manufacturing Plant, has just reviewed a draft of his yearend financial statements. Scott receives a year-end bonus of 10% of the plant?s operating income
before tax. The year-end income statement provided by the plant?s controller was disappointing. After
reviewing the numbers, Scott demanded that the controller go back and ?work the numbers? again.
Scott insisted that if he didn?t see a better operating income number the next time around he would be
forced to look for a new controller.
ABC Manufacturing classifies all costs directly related to the manufacturing of its product as product
costs. These costs are inventoried and later expensed as costs of goods sold when the product is sold.
All other expenses, including finished goods warehouse costs of $3,250,000 are classified as period
expenses. Scott has suggested that warehousing costs be included as product costs because they are
?definitely related to our product.? The company produced 200,000 units during the period and sold
As the controller reworked the numbers, he discovered that if he included warehousing costs as product
costs he could improve operating income by $325,000. He was also sure these new numbers would
make Scott happy.
Write a memo following the ethical case guidelines.
Things to think about and include in your memo:
1. Show how operating income would improve by $325,000 just by classifying the preceding
costs as product cost instead of period expenses.
2. Is Scott correct in his justification that these costs ?are definitely related to our product??
Blackhawk Technical College
Five Step Model for Dealing with Ethical Dilemmas
Ethics cases will require you to use the knowledge and skills that you have acquired throughout
your career in the Accounting Program. These cases are designed to enhance the accounting
mind in each of you as students. They will test your ability to identify and analyze an ethical
dilemma. You will be required to identify all viable alternatives to a situation and weigh the
impact of each alternative on the interested parties through written communication.
Each ethics case will require a typed memo to your instructor. Be sure to format the memo like
a business memo (following all the guidelines for a professional memo as identified by the
Accounting instructors), and include in the Subject or RE: line the name of the company
involved. Be sure to follow the following four step model when responding to all ethical
dilemmas assigned in the Accounting Program.
Step 1: Restate the facts and identify the ethical dilemma.
An ethical dilemma occurs when a company considers a decision about an
accounting method or disclosure and that decision leads to different
information being communicated to stakeholders.
Step 2: Identify the following:
a. What stakeholders may benefit from the proposal/situation?
b. What stakeholders may be harmed by the proposal/situation?
Explain how the stakeholder is affected.
Step 3: Explain the accounting rules, principles, and standards related to the situation.
Step 4: Identify all alternatives and discuss the impact of each alternative on the financial
statements. Include the ones you would not recommend. Each alternative should be in
a separate paragraph.
a. Identify the alternative methods available.
b. Discuss the effect of each alternative on the financial statements.
c. Identify which generally accepted accounting principle is adhered to or
d. Evaluate the relevance and reliability of the alternatives.
Step 5: Provide your recommendation. Select the best alternative and provide supporting
documentation for your decision.
January 28, 2017
Ethic Case Format Example
The first paragraph is the introduction. Important facts regarding the case should be restated.
These facts need to identify the parties involved and provide enough background information so
any reader has a full understanding of the scope of the problem and motivation of the parties
involved. This paragraph will end with the following statement: The ethical dilemma is?????.
In this section identify the parties that benefit from the transaction/proposal/situation
In this section identify the parties that are harmed by the transaction/proposal/situation
In this section discuss the guiding laws, rules, principles, or standards that could be used
to make an informed decision.
In this section list the alternative course of actions that could be taken and how each of
these actions affect the financial statements. Each alternative must be in its own
In this section make a recommendation based on the above analysis. The alternative
should provide the most useful, relevant, free from bias, and reliable information that
follows GAAP. Justify the recommendation.
Write in 3rd person
Do not use a memo template that
comes with a software program
Must be typed
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