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Ethics and professional conduct in business
Erin Haywood was recently hired as a cost analyst by Wind River Medical Supplies Inc. Oneof Erin’s first assignments was to perform a
storage space is needed. Zuhair asks Erín into his office and the following conversation
takes place:
ZubairErín, you’re new here, aren’t you?
EHii: Yes, sir.
Zubair: V.dl, Erin, let me tell you something. ¡m not at all pleased with the capital investment
analysis that you performed on this new warehouse. T need that warehouse for my production.
If I dont get it, where am I going to place our output?
Erín: Hopefully with the customer, sir.
Zithair: Now don’t get smart with me.
Erín: No, really. I was being serious. My analysis does not support constructing a new ware-
house. The numbers don’t lie: the warehouse does not meet our investment return targets.
In fact, it seems to me that purchasing a warehouse dots not add much value to the business.
We need to be producing product to satisfy customer orders, not to fill a warehouse.
Zubair Listen, you need to understand sonwthing. The headquarters people will not allow mv
to build the warehouse if the numbers dont add up. You know as well as I that many assump
tions go into your net present value analysis. Why don’t you relax some of your assumptions so
that the f́nancial savings will offset the cost?
Erín: I’m willing to discuss my assumptions with you. Maybe I overlooked something.
Zubafr Good. Here’s what I want you to do. 1 see in your analysis tha you don’t project
greater sales as a result of the warehouse. It seems to me, if we can store more goxLs, then
will have more to sell. Thus, logically, a larger warehouse translates into more sales. If you
incorporate this into your analysis, I think you’ll see that the numbers will work out. Why
don’t you work it through and come back with a new analysis? I’m really counting on you
on this one. Let’s get off to a good start together and see if we can get this project accepted.
What is your advice to Erin?
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Chapter 15 Solutions
Survey of Accounting - With CengageNOW 1Term
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