Ethical Issues in the Use of Activity-­Based Costing

Read the following in Chapter 10 of the Fundamentals of Cost Accounting text:

  • Exercise 10-33, “Activity-Based Costing of Customers: Ethical Issues,” page 405. (Attached)

After reading the exercise, respond to the following prompts:

  1. Explain how you recommend that the cost of the computer lab be allocated to the two programs. Be explicit in your description of the allocation basis.
  2. The dean tells you that the training program should not be allocated any costs other than its direct costs. She points out that the college was established for undergraduate education and the training program is an incremental activity. “After all, if we didn’t have the training program, we would still have the computer lab,” she says. Do you agree with the dean’s comment? Discuss whether the dean’s suggestion is ethical.
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