Reference no: EM131096041
Break-even and the Ethics of Estimating Costs
The break-even point tells a company the number of units or the amount of revenue that it must sell or earn in order to pay for all of its costs. At this point, the company has neither profit nor loss.
Companies have two main types of costs: variable costs and fixed costs.
Variable costs are those costs that vary with the number of units produced. Examples of variable costs are direct labor, direct materials and overhead.
Fixed costs are those costs that a company incurs that do not depend on production. For example, most selling, and all administrative costs are fixed. A company must pay these costs even if it does not have any production activity.
Read the following ethical dilemma.
Spillproof Company produces molded plastic cup holders for automobiles. Below is a summary of its Contribution Margin Income Statement from last year:
Revenues: $5,750,000
less Variable costs: $3,850,000
Equals Contribution Margin: $1,900,000
Less Fixed costs: $2,000,000
Equals Net Loss: ($100,000)
Because the company's CEO is very concerned about the firm's net losses, she asks the production manager if there are any ways in which they can reduce costs.
A few weeks later, the production manager returns with a proposal to reduce variable costs to 53% of revenues by lowering the cost estimates that the company uses for environmental clean-up costs. Some years the company has to perform waste clean-up and other years it does not. Either way, the company records this estimated cost as part of Variable Cost since it is based on the number of units produced.
The CEO likes the new projected net income and new break-even point, but is concerned that this change in the estimate will misrepresent the potential liability. The manager disagrees. He feels that the company will not be violating any laws by changing their estimate, and that there is only a possibility of environmental costs in the future anyway.
Requirements for your Main thread post:
- Calculate the CURRENT breakeven revenues using the current Contribution Margin Income Statement information above. Show us your work!
- Re-calculate the breakeven revenues if variable costs are 53% of revenues.
- Calculate Spillproof's projected Net Income/Loss. Show us your work!
- Discuss the following:
- What are the ethical issues involved in this case? Explain your answer.
- Do you feel that the Production Manager is acting improperly or immorally? Why or why not? Please explain your response.
- What stakeholders would be affected if the CEO implemented the Production Managers suggestions? Why?
- What should the CEO do?
Note - be sure to properly cite your resources using the APA style.
Different kinds of unified communication platforms
: What are the comparison of the different kinds of unified communication platforms, their features and functionality, based on the five criteria.
|
Create an analogy for thestructureof the macro molecule
: In order to help you remember the different types of macromolecules and their general structure and function, I would like you to create2different types of analogies for each type of macromolecule (a total of 8 analogies).
|
Business memo to senior management
: Post an approximately 175-word business memo to senior management analyzing and explaining the dilemma and your strategy for solving the ethical dilemma.
|
Two goods can be produced-light bulbs and wires
: Suppose that in DanLand two goods can be produced: light bulbs and wires. It takes 3 hours to make a light bulb in DanLand and 4 hours to make a wire in DanLand. In YouLand two goods can be produced: light bulbs and wires. It takes 6 hours to make a ..
|
Break-even and the ethics of estimating costs
: The break-even point tells a company the number of units or the amount of revenue that it must sell or earn in order to pay for all of its costs. At this point, the company has neither profit nor loss.
|
Question regarding the matrix organizational structures
: Tammy was just alerted that her new project team is part of the new matrix structure the company she works for has started to roll out. Tammy is a little uncertain about what this new matrix structure will mean for her, as she will likely now have..
|
Find the cost-minimizing combination of labor and capital
: Suppose the production of Crocs is characterized by the production function Q = LK , where Q represents the number of pairs of Crocs produced. Suppose that the price of labor is $10 per unit and the price of capital is $1 per unit. Find the cost-mini..
|
How would more controlled access to credit
: How would a more controlled access to credit by firms and individuals have reduced the over leverage of businesses and individuals and decreased the likelihood of the recent economic downturn?
|
Problem solver and a problem pyromaniac
: What is the difference between a "problem solver" and a "problem pyromaniac?" What are the possible consequences of the latter?
|