Ethical case: In this case out of the three departments Person B has no interest in plumbing department. B wants to reallocate the company’s fixed cost of other two divisions to the plumbing divisions in order to improve the income. But it does not create any changes thereby, the board of directors suggested to close the plumbing department. To discuss: If a division is reporting losses, does that mean that it should be closed.

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Answer 1

Question

Chapter 7, Problem 7.6BYP

(a)

To determine

Ethical case:

In this case out of the three departments Person B has no interest in plumbing department. B wants to reallocate the company’s fixed cost of other two divisions to the plumbing divisions in order to improve the income. But it does not create any changes thereby, the board of directors suggested to close the plumbing department.

To discuss: If a division is reporting losses, does that mean that it should be closed.

(b)

To determine

Fixed Cost:

It is a cost which is constant in the short run, it is not related to any change in the production of goods or service, it will be fixed disregarding of increase or decrease in output. Fixed cost is generally incurred on fixed assets in long run.

To explain: Reallocation of fixed costs across the division was unethical.

(c)

To determine

To explain: What Person B should do?

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Answer 2

Question

Chapter 7, Problem 7.6BYP

(a)

To determine

Ethical case:

In this case out of the three departments Person B has no interest in plumbing department. B wants to reallocate the company’s fixed cost of other two divisions to the plumbing divisions in order to improve the income. But it does not create any changes thereby, the board of directors suggested to close the plumbing department.

To discuss: If a division is reporting losses, does that mean that it should be closed.

(b)

To determine

Fixed Cost:

It is a cost which is constant in the short run, it is not related to any change in the production of goods or service, it will be fixed disregarding of increase or decrease in output. Fixed cost is generally incurred on fixed assets in long run.

To explain: Reallocation of fixed costs across the division was unethical.

(c)

To determine

To explain: What Person B should do?

Expert Solution & Answer

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Answer 3

Question

Chapter 7, Problem 7.6BYP

(a)

To determine

Ethical case:

In this case out of the three departments Person B has no interest in plumbing department. B wants to reallocate the company’s fixed cost of other two divisions to the plumbing divisions in order to improve the income. But it does not create any changes thereby, the board of directors suggested to close the plumbing department.

To discuss: If a division is reporting losses, does that mean that it should be closed.

(b)

To determine

Fixed Cost:

It is a cost which is constant in the short run, it is not related to any change in the production of goods or service, it will be fixed disregarding of increase or decrease in output. Fixed cost is generally incurred on fixed assets in long run.

To explain: Reallocation of fixed costs across the division was unethical.

(c)

To determine

To explain: What Person B should do?

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Answer 4

Question

Chapter 7, Problem 7.6BYP

(a)

To determine

Ethical case:

In this case out of the three departments Person B has no interest in plumbing department. B wants to reallocate the company’s fixed cost of other two divisions to the plumbing divisions in order to improve the income. But it does not create any changes thereby, the board of directors suggested to close the plumbing department.

To discuss: If a division is reporting losses, does that mean that it should be closed.

(b)

To determine

Fixed Cost:

It is a cost which is constant in the short run, it is not related to any change in the production of goods or service, it will be fixed disregarding of increase or decrease in output. Fixed cost is generally incurred on fixed assets in long run.

To explain: Reallocation of fixed costs across the division was unethical.

(c)

To determine

To explain: What Person B should do?

Expert Solution & Answer

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Answer 5

Chapter 7, Problem 7.6BYP

(a)

To determine

Ethical case:

In this case out of the three departments Person B has no interest in plumbing department. B wants to reallocate the company’s fixed cost of other two divisions to the plumbing divisions in order to improve the income. But it does not create any changes thereby, the board of directors suggested to close the plumbing department.

To discuss: If a division is reporting losses, does that mean that it should be closed.

(b)

To determine

Fixed Cost:

It is a cost which is constant in the short run, it is not related to any change in the production of goods or service, it will be fixed disregarding of increase or decrease in output. Fixed cost is generally incurred on fixed assets in long run.

To explain: Reallocation of fixed costs across the division was unethical.

(c)

To determine

To explain: What Person B should do?

Answer 6

Chapter 7, Problem 7.6BYP

(a)

To determine

Ethical case:

In this case out of the three departments Person B has no interest in plumbing department. B wants to reallocate the company’s fixed cost of other two divisions to the plumbing divisions in order to improve the income. But it does not create any changes thereby, the board of directors suggested to close the plumbing department.

To discuss: If a division is reporting losses, does that mean that it should be closed.

Answer 7

Chapter 7, Problem 7.6BYP

(a)

To determine

Ethical case:

In this case out of the three departments Person B has no interest in plumbing department. B wants to reallocate the company’s fixed cost of other two divisions to the plumbing divisions in order to improve the income. But it does not create any changes thereby, the board of directors suggested to close the plumbing department.

To discuss: If a division is reporting losses, does that mean that it should be closed.

Answer 8

(b)

To determine

Fixed Cost:

It is a cost which is constant in the short run, it is not related to any change in the production of goods or service, it will be fixed disregarding of increase or decrease in output. Fixed cost is generally incurred on fixed assets in long run.

To explain: Reallocation of fixed costs across the division was unethical.

Answer 9

(b)

To determine

Fixed Cost:

It is a cost which is constant in the short run, it is not related to any change in the production of goods or service, it will be fixed disregarding of increase or decrease in output. Fixed cost is generally incurred on fixed assets in long run.

To explain: Reallocation of fixed costs across the division was unethical.

Answer 10

(c)

To determine

To explain: What Person B should do?

Answer 11

(c)

To determine

To explain: What Person B should do?

Answer 12

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Answer 13

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Answer 14

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Answer 15

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Solution Summary: The author explains that if a division is reporting losses, it does not mean that it should be closed.

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