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Niobrara Pesticide Company's new president has learned that, for the past four years, the company has been dumping its industrial waste into the local river and falsifying reports to authorities about the levels of suspected carcinogens in that waste. The plant manager says that there is no proof that the waste causes cancer and that only a few fishing villages are within 100 miles downriver. If the company must treat the substance to neutralize its potentially injurious effects and then transport it to a legal dump site, the company's variable and fixed costs would rise to a level that might make the firm uncompetitive. If the company loses its competitive advantage, 10,000 local employees could become unemployed and the town's economy could collapse.
a. What specific variable and fixed costs can you identify that would increase (or decrease) if the waste were treated rather than dumped? How would these costs affect product contribution margin?
b. What ethical conflicts does the president face?
c. What rationalizations can you detect that plant employees have devised?
d. What options and suggestions can you offer the president?
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