Question

can anyone help me to solve this?part b and c

Ethics Case CT7.5 Bima Yatsen became Chief Executive Officer of Pahlawan Enterprises two years ago. At the time, the company was reporting lagging profits, and Bima was brought in to "stir things up." The company has three divisions, electronics, fiber optics, and plumbing supplies. Bima has no interest in plumbing supplies, and one of the first things he did was to put pressure on his accountants to reallo- cate some of the company's fixed costs away from the other two divisions to the plumbing division. This had the effect of causing the plumbing division to report losses during the last two years; in the past it had always reported low, but acceptable, net income. Bima felt that this reallocation would shine a favorable light on him in front of the board of directors because it meant that the electronics and fiber optics divisions would look like they were improving. Given that these are "businesses of the future," he believed that the equities market would react favorably to these increases, while not penalizing the poor results of the plumbing division. Without this shift in the allocation of fixed costs, the profits of the electronics and fiber optics divisions would not have improved. But now the board of directors has suggested that the plumbing division be closed because it is reporting losses. This would mean that nearly 500 employees, many of whom have worked for Pahlawan their whole lives, would lose their jobs. Instructions a. If a division is reporting losses, does that necessarily mean that it should be closed? b. Was the reallocation of fixed costs across divisions unethical? c. What should Bima do?

please explain more about the answers

Answer 1

Requirement a

Losses donot indicate a sick company. Many things should be considered and one needs to analyze if the causes for the losses are vital enough to close the division. When people are retrenhed, especially a great number of people at one time, it disturbs the rest or continuing employees. They can become anxious and petrified that they too can lose their jobs. Just because a company shuts a division does not mean that the net income will go up. Since the fixed cost would be assigned to the other two divisions from the plumbing supplies division the net income may now go down. I am thinking that this may happen if the division is closed.

Requirement b

Cost apportionment is the allocating of a common cost to several cost objects. For example, a company might allocate or assign the cost of a costly computer system to the three main areas of the company that use the system. A company with only one electric meter might allot the electricity bill to numerous departments in the company.

In this case I do not rely on it to be unprincipled. Companies have been known to reallocate fixed costs sometimes when it is completely necessary. As long as the allocation is done for the right motives like the decline in net income and the reasons or factors, which triggered this reduction to occur. The reallocation of fixed costs are not done with the harsh aim of harming or oppressing employees but because it has to be done for the existence of the company. This is not bad.

Requirement c

Bima should call a meeting or send a memo to the board of directors to converse that the reduction in the net income was because of the reallocation. He should propose that the plumbing supplies division should not be closed. Bima should just come right out and say that it would be an error to close the division. Actually Bima would be exhibiting beliefs for the employees and the company as a whole. He would also be permitting the company to upsurge its net income at the same time; not to mention saving many people’s jobs.