Bob and Nancy have recently expanded their educational film business by shooting 30-second television ads for a regional television market in southern Colorado. They began business about 15 years ago with a contract to film training videos for the U.S. Army, and that business continues to provide a steady revenue base, currently about 40 percent of total revenue. Nancy is the firm's accountant, and in a visit to your accounting class last week, made a presentation detailing her firm's costing activities. Your instructor has asked you to respond to one particular statement that Nancy made: "Since our contract for military training films requires us to detail all costs, we use the process cost method that gives the maximum amount of fixed overhead cost. This almost covers all of our overhead, giving us an edge in competitively pricing our 30-second TV ads, and explains why we have grown so much in this sector of our business." Is there an ethical problem with this approach? Does it represent acceptable accounting procedure?
Justify your answers with examples and reasoning.