ETHICS CASE Ethics Case



Ethics Case

Explain how shaving 5% off the estimated direct labor-hours in the base for the predetermined overhead rate usually results in a big boost in net operating income at the end of the fiscal year.

Decreasing the direct labor hours by about 5 percent will increase the overhead rate by about 5 percent. At the end of the year, actual overhead will be less than applied overhead, resulting in a favorable overhead variance. Cost of goods sold will have absorbed the actual direct labor hours. The favorable overhead variance will reduce cost of goods sold increasing gross ...