Which of the following engagement observations would provide the least motivation for management to amend or replace an existing cost accounting system?
A.
The distorted unit cost of a service is 50 percent lower than the true cost, while the true cost is 50 percent higher than the competition ' s cost.
B.
The organization is losing $1,000,000 annually because it incorrectly outsourced an operation based on information from its current system.
C.
The cost of rework, hidden by the current system, is 50 percent of the total cost of all services.
D.
Fifty percent of total organizational cost has been allocated on a volume basis.
Management is more likely to amend or replace a cost accounting system when the system produces misleading decisions, material losses, poor competitiveness, or hidden quality costs. Options A, B, and C each show direct and serious business consequences. Option A indicates distorted service costs and poor competitive positioning. Option B shows a measurable annual loss caused by a bad outsourcing decision based on flawed cost information. Option C reveals that the current system hides major rework costs, which undermines performance management and process improvement. Option D, however, merely states that 50 percent of total organizational cost is allocated on a volume basis. Volume-based allocation may be imperfect, but by itself it does not prove material distortion, loss, or poor decision-making. Therefore, it provides the least motivation for immediate system replacement.
Contribute your Thoughts:
Chosen Answer:
This is a voting comment (?). You can switch to a simple comment. It is better to Upvote an existing comment if you don't have anything to add.
Submit