Reference no: EM132651174

Question - Susan Mills, Company B's chief accountant, has developed an automated costing system that helps track the cost of production activities. This system is capable of accurately measuring and allocating post-manufacturing activities, such as selling, promotional, and distribution activities, in such a way where Company B gets a more detailed view of its product costs. One of the benefits of this system is that it allows Company B to determine which product lines are more profitable.

When Susan implemented the new costing system, she realized that the company's current period profits would increase significantly if the new product cost information was used for inventory valuation on the financial statements. Susan has been under intense pressure to improve the company's profits, and this would be a quick and effective way for her to help meet the company's short-term profit goals. As a result, Susan has decided to use the automated costing system to determine the company's profits.

1. Why do the company's profits increase when the new costing system is implemented?

2. Is Susan acting ethically by using the new costing system for determining the company's profits? Explain your answer.