Ethics; Cost System Selection Aero Dynamics manufactures airplane parts and engi

Question

Ethics; Cost System Selection Aero Dynamics manufactures airplane parts and engines for a variety of military and civilian aircraft. The company is the sole provider of rocket engines for the U.S. military that it sells for full cost plus a 5% markup. Aero Dynamics’s current cost system is a direct labor hour–based overhead allocation system. Recently, the company conducted a pilot study on the feasibility of using an activity-based costing system. The study shows that the new ABC system, while more accurate and timely, will result in the assignment of lower costs to the rocket engines and higher costs to the company’s other products. Ap- parently, the current direct labor-based costing system overcosts the rocket engines and undercosts the other products. On hearing of this, top management has decided to scrap the plans to adopt the ABC system because its rocket engine business with the military is signifi cant and the reduced cost would lower the price and, thus, the profi t for this part of Aero Dynamics’s business.

Required As the management accountant participating in this ABC pilot study project, what is your responsibility when you learn that top management has decided to cancel the plans for the ABC system? Can you ignore your professional ethics code in this case? What would you do?
Instraction
It is in the chegg answer but the Professor need deep explanation with 250 word or more! Please do not copy and pace from the text solutions

Explanation / Answer

In this question, we are provided detail that the company produces rocket engines as well as airplane parts.

Using Tradition costing method (in which expenses are allocated on the basis of labor cost), cost of rocket engines will be more as compare to ABC system.

Company's Management has decided not to use ABC cost system as it will show reduce cost and due to the same profit margin (because company is using profit margin 5% of cost). So if cost will reduce, profit margin will reducr. It will not good for the company.

This a wrong decision of management. ABC study shows that engines cost is less and other parts production cost is more. So company should improve cost management for other parts, but not to implement ABC is not the right way to increase the profit.

As a Management Accountant, we wil advice company to adopt ABC system and decide cost and sale price accordinngly. For Other parts, company should improve cost policy and recognise unncessary expenses and try to reduce it so that company's overall profitibility will increse.

As a Management Accountant, this is against the Professional Ethics and it should be known to company's CEO.  

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