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The controller of Tri Con Global Systems Inc. has developed a new costing system that traces the cost of activities to products. The new system is able to measure post-manufacturing activities, such as selling, promotional, and distribution activities, and allocate these activities to products in a manner that provides a more complete view of the company's product costs. This system produces better strategic information about the relative profitability of product lines.
Question 1: Why does the company's net income increase when the new costing system is applied?
Question 2: Is the controller acting ethically by using the new costing system for GAAP net income? Explain your answer.
The manager of the Retailing Division provided the accompanying memo with this report: - Comment on the senior vice president's memo in light of the cash flow information.
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