In making an ethical decision, which step entails exploringyour own personal beliefs and how it can affect your opinion?(Points : 1)
Identify anyconstraints relating to the decision.
Identify the possiblecourses of action from all courses of action.
Identify and analyze theproblem at hand.
Select the best course ofaction based on experience.
In making an ethical decision, which step entails exploringyour own personal beliefs and how it can affect your opinion?(Points : 1) |
Identify anyconstraints relating to the decision.
Identify the possiblecourses of action from all courses of action.
Identify and analyze theproblem at hand.
Select the best course ofaction based on experience.
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âIn my opinion, we ought to stop making our own drums and acceptthat outside supplierâs offer,â said Wim Niewindt, managingdirector of Antilles Refining, N.V., of Aruba. âAt a price of $18per drum, we would be paying $6.65 less than it costs us tomanufacture the drums in our own plant. Since we use 65,000 drums ayear, that would be an annual cost savings of $432,250.â AntillesRefiningâs current cost to manufacture one drum is given below(based on 65,000 drums per year):
Direct materials | $ | 10.50 |
Direct labor | 7.50 | |
Variable overhead | 1.50 | |
Fixed overhead ($2.60 generalcompany overhead, $1.65 depreciation, and,$0.90 supervision) | 5.15 | |
Total cost per drum | $ | 24.65 |
A decision about whether to make or buy the drums is especiallyimportant at this time because the equipment being used to make thedrums is completely worn out and must be replaced. The choicesfacing the company are:
Alternative 1: Rent new equipment and continue to makethe drums. The equipment would be rented for $175,500 per year.
Alternative 2: Purchase the drums from an outsidesupplier at $18 per drum.
The new equipment would be more efficient than the equipmentthat Antilles Refining has been using and, according to themanufacturer, would reduce direct labor and variable overhead costsby 30%. The old equipment has no resale value. Supervision cost($58,500 per year) and direct materials cost per drum would not beaffected by the new equipment. The new equipmentâs capacity wouldbe 225,000 drums per year.
The companyâs total general company overhead would be unaffectedby this decision. (Round all intermediate calculations to 2decimal places.)
Required:
1. To assist the managing director in making a decision, preparean analysis showing the total cost and the cost per drum for eachof the two alternatives given above. Assume that 65,000 drums areneeded each year.
a. What will be the total relevant cost of 65,000 drums if theyare manufactured internally as compared to being purchased?
b. What would be the per unit cost of each drum manufacturedinternally? (Round your answer to 2 decimalplaces.)
c. Which course of action would you recommend to the managingdirector?
Purchase from the outsidesupplier | |
Manufacture internally | |
Indifferent between the twoalternatives |
2a-1. What will be the total relevant cost of 195,000 drums ifthey are manufactured internally?
2a-2. What would be the per unit cost of drums?
2 a-3. What course of action would you recommend if 195,000drums are needed each year?
Indifferent between the twoalternatives | |
Manufacture internally | |
Purchase from the outsidesupplier |
2b-1. What will be the total relevant cost of 225,000 drums ifthey are manufactured internally?
2b-2. What would be the per unit cost of drums? (Roundyour answer to 2 decimal places.)
2b-3. What course of action would you recommend if 225,000 drumsare needed each year?
Manufacture internally | |
Purchase from the outsidesupplier | |
Indifferent between the twoalternatives |
The Problem: The Case of the SickBuilding
This week you received a memo from one of the members of the HumanResources Department. He suspects the aging building which housesyour division is filled with mildew and other agents which causerespiratory distress. These agents are circulated throughout thebuilding and will cause more and more illnesses to occur. Herecommends that this problem be quickly remedied.
While you sympathize with him, the changes heâs suggesting willhave to come from the money the company was holding in reserve forthe next product launch. The company owns the building and thecurrent market value is $2 million. While you have insurance, youalso have a $250,000 deductible. Thus, to âcureâ the alleged âSickBuilding Syndromeâ you will have to spend $250,000 and the balanceof the expense will come from insurance. If you do not fix theproblem, it will continue to worsen.
Further, the Human Resources team has forwarded the following memoto you:
To: Human Resources
From: Marcus Keller
RE: Illness
This memo is to inform the members of the Executive Committee thatI will be taking an extended leave of absence due to my acuterespiratory problems. My doctor informs me that the symptoms andseverity of the problems are likely due to "Sick BuildingSyndrome."
Marcus Keller
Currently, three people are sick. While the health care policyyou provide for employees covers the expenses associated with theillness, your insurance premium is tied to the use of the policy.Thus, if people continue getting ill with a long term illness, thecost of insurance will increase.
Please complete each section of this worksheet. Some peoplefind that writing the answers out on another page and then "cuttingand pasting" them into the worksheet lets you think through theproblem better.
If you only have time to do part of this worksheet, click the "savework" button at the bottom of this page. At any later time, you canthen return to this worksheet and continue.
Be Attentive: Set the Context
1. Ethical Actor
The first step is to identify the ethical actor. In a sentenceidentify the ethical actor for this problem.
2. Stakeholders
The next step is to identify the stakeholders. List the otherstakeholders for this problem.
3. Assumptions
In two or three bullet points, identify any assumptions you aremaking about the problem.
Be Intelligent: Identify the Issue and the Values inTension
1. Issue
In one sentence, identify the issue for this problem.
2. Values in Tension
In three or four bullet points, identify the values intension.
Be Reasonable: Explore the Options
1. Influence Factor
In this first step, list the stakeholder groups that will beinfluenced by the decision. For each group, note the number ofstakeholders in the group. Also note the impact that any decisionwill have on each group. The impact is expressed on a scale from 1to 10.
Note that the sum of all impact numbers should add up to 10, andeach impact number must be greater than zero.
PLEASE NOTE: At least 3 stakeholders must always be defined for theethical dilemmas.
To add a stakeholder group, click the "+" button. To delete astakeholder group, click the "Ã" button next to the row containingthe group you wish to delete. Note that these actions affect alltables on this worksheet.
Stakeholder | Number in Group | Impact (1-10) | Influence Factor | |
012345678910 | ||||
012345678910 | ||||
012345678910 |
10 Remaining | ||||
2. Criteria for Happiness
In this next step, list the criteria for happiness associated withthe stakeholders and the issue at hand.
Stakeholder | Criteria |
na | |
na | |
na |
3. Units of Happiness
After brainstorming with the leadership team, you haveidentified four options:
Spend the money on the repairs to the building.
Set aside required money to handle the increased premiums due tothe illness of employees.
Do nothing and handle those who become ill through the existinghealth care and short term leave policies.
Buy a new building and sell the other building for the value ofthe land.
Choose three out of the four options to analyze. For eachoption, calculate the units of happiness (utils) for eachstakeholder group. Utils are measured on a scale of 1 to 10.
Select Option... Happiness Utils for Option 1 Happiness Utilsfor Option 2 Happiness Utils for Option 3 Happiness Utils forOption 4
Stakeholder | Utils | Rationale |
na | 0 1 2 3 4 5 6 7 8 9 10 | |
na | 0 1 2 3 4 5 6 7 8 9 10 | |
na | 0 1 2 3 4 5 6 7 8 9 10 |
4. Greatest Good
Once you have completed your analysis of this ethical dilemma bymeans of the tables above, it is possible to determine the totalweighted units of happiness. In this final step, you can see whichoption truly does produce the greatest good for the greatestnumber.
Be Responsible
1. Choose an Option
Select one option to implement within your Division:
Spend the money on the repairs to the building. |
Set aside required money to handle the increased premiums dueto the illness of employees. |
Do nothing and handle those who become ill through the existinghealth care and short term leave policies. |
Buy a new building and sell the other building for the value ofthe land. |
2. Explain Your Decision
Using the guidelines for how to write a memo, write a memo to beshared with the rest of the leadership team which explains yourdecision.
When you have completed all sections of this worksheet,please click the "continue" button below. This action will saveyour answers and advance you to the next worksheet in thisassignment. If you wish to save your current work and then returnto this worksheet at a later time, click the "save work" buttonbelow. Please note that this action will truncate any response thatexceeds the 8,000 character limit.