Steve Is Quickly Moving Up in the Accounting Department of RAC

question 29

Essay

Steve is quickly moving up in the accounting department of RAC Inc.It is yearend; he has just received news that the estimates of the estimated useful life and salvage values were wrong and must be changed.Of course, that changes the depreciation expense and accumulated depreciation.Steve calls his wife to explain why he will be late again.Now is he is pondering on a comment his wife made.She said "I'm no accountant; but after four years, you would think that the company could get done how its estimates affect expenses and those other accounts." What might the company be doing and what should Steve do from an ethical reasoning view?

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Definitions:

Average Variable Cost

The total variable expenses divided by the number of units produced, representing the variable cost per unit.

Average Total Cost

The total cost of production divided by the number of goods produced, representing the average cost per unit of output.

Profit-maximizing Firm

A business organization that focuses on making the highest possible profit by adjusting its production and pricing strategies.

Marginal Cost

The rise in overall expenses associated with the creation of an extra unit of a good or service.