Reference no: EM131097982

The budget uses standards that are developed by management. These standards determine if a product is being produced according to the business plan. If the product is using more materials than planned, it will cause net income to decrease from the planned income. If labor hours being used are more but the budgeted rate is less than planned, the net income could increase from the planned income. Shelly is an accountant who determines the standards to be used for materials and labor. Shelly feels she understands the payroll rates much better than the payroll department. She has set a labor rate less than what has been suggested by the payroll department. Her attitude is that the skill of the worker should be less and she is trying to force management to see her point of view. At the end of the month, the total labor costs have a favorable variance. The labor rate is the reason for the variance. Is Shelly unethical in her actions? What could happen because of her actions?