Reference no: EM131089330
1. Central State College (CSC) is a state-supported college with a large business school. The business school offers an undergraduate degree and training programs for a local manufacturer. The state does not support the training programs, which are paid for by the manufacturer under a fixed-price contract.
The college president has asked the dean of the business school for a breakdown of costs by program. The president will be meeting with state legislators asking for an increase in support for the college's programs. The dean has assigned you to lead the team that will develop the costs by program.
The business school's computer lab is a major cost item. The lab is used during the day for the undergraduate program and in the evening for the training program.
Required
a. How will you recommend that the cost of the computer lab be allocated to the two programs? Be explicit in your description of the allocation base.
b. The dean tells you that the training program should not be allocated any costs other than its direct costs. She points out that the college was established for undergraduate education and the training program is an incremental activity. "After all, if we didn't have the training program, we would still have the computer lab," she says. Do you agree with the dean? Is the dean's suggestion ethical?
2. Farmer Frank's produces items from local farm products and distributes them to supermarkets. Over the years, price competition has become increasingly important, so Susan Kramer, the company's controller, is planning to implement a standard cost system for Farmer Frank's. She asked her cost accountant, Margaret Chang, to gather cost information on the production of blueberry preserves (Farmer Frank's most popular product). Margaret reported that blueberries cost $0.75 per quart, the price she intends to pay to her good friend who has been operating a blueberry farm that has been unprofitable for the last few years. Because of an oversupply in the market, the price for blueberries has dropped to $0.60 per quart. Margaret is sure that the $0.75 price will be enough to pull her friend's farm out of the red and into the black.
Required
Is Margaret's behavior regarding the cost information she provided to Susan unethical? Explain your answer.
(CMA adapted)
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