Explain the ethical issue at hand

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Reference no: EM133526

Question :

The trainer showing that for manufacturing firms using an "absorption-based accounting system," managers and CEOs have the ability to "manipulate" reported productivity in order to improve their year-end bonuses. They would do this by simply overproducing units that can't be sold right away. This causes some fixed costs to end up in the firms finish inventory, rather than in that period's cost of goods sold COGS on the income statement. This makes COGS lower than it otherwise could be, and thus makes profits higher. While this is legal, it distorts the firm's actual productivity and most people consider it to be unethical.

Discuss the subsequent:

Explain the ethical issue at hand in your own words.

Explain why a management accountant would play a role in this "overproducing" issue.

Show your personal opinion on whether you think this is an important issue, and clarify why.

Explain the differences and similarities between financial accounting and managerial accounting.

If you were the Board of Directors, overseeing this firm's CEO, what could you do to save this "overproduction" from taking place simply to improve his or her bonus?

Reference no: EM133526

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