Question

In conducting interviews and observing factory operations to implement an activity-based costing system, you determine that several activities are unnecessary or redundant. For example, warehouse personnel were inspecting purchased components as they were received at the loading dock. Later that day, the components were inspected again on the shop floor before being installed in the final product. Both of these activities caused costs to be incurred but were not adding value to the product. If you include this observation in your report, one or more employees who perform inspections will likely lose their jobs.

Required

1. As a plant employee, what is your responsibility to report your findings to superiors?

2. Should you attempt to determine if the redundancy is justified? Explain.

3. What is your responsibility to the employees whose jobs will likely be lost because of your report?

4. What facts should you consider before making your decision to report or not?

Short answer

Answer

As a matter of ethical challenge, the report must be prepared with utmost good and faith any decision to prepare the report must be taken as per the objective of the report and organizational goals.

Step-by-step solution

Responsibility of plant employee

As a plant employee, it is the responsibility of the person to report the correct facts and findings to the superiors. Here the fact that some of the activities are redundant or unnecessary must be put forth before the management mange that would be in fa our of the long term decision of the organization.

Redundancy

Whether redundancy is justified or not is the matter relating to the plant manager for the cost accountants. Any managerial decision is taken by the person having that capacity within the organization. Thus to decide which activity to be eliminated or reduced depends upon that person. Any other employee can report the facts to the management but does not have the capacity to decide upon the justification of the fact.

Responsibility towards other employees

As an employee of the organization, the person’s responsibility towards the other employees is to make the aware of the facts and to induce them to talk to the management for a better solution.

Decision making

Any decision for making the report is based on the organizational goal and objective of the report. If the objective of the report is to cite the irrelevant activities or unnecessarily cost, then it must be included in the report.