“Why would you want to know?”
I believe that I would want to know for many reasons. First, as a senior manager or a member of the accounting office, this information is vital to the company’s success or potential downfall. Why keep dumping money into a product like D45s if it is not profitable? A lot of companies follow down the line of what ifs in hope that there may be a successful outcome in the end. It is like continuing to invest in penny stocks because someone else says it is the right time to invest. On the other hand, if the product like D45 is profitable why not increase the scheduled production. I believe with research and gathering trending facts, the best alternative will be selected. A very helpful tool in this decision making process is the incremental analysis. Incremental analysis is a key tool to aid throughout the process. It can be essential in identifying the best alternative or course of action when several avenues are available. This analysis tool is based on the differences between costs and revenues. In this situation when an alternative is to drop the product like D45s the most relevant cost information needed would be direct costs associated with the product itself. Then the change in income would be considered when coming to a final decision to remove D45 or to increase production.
Case Study 2-1 Ethics Case: Brixton Surgical Devices
No, Ed and Robin’s decision on boosting inventory and persuading their customers with discounts in the fourth quarter is unethical. Their acts to scheme and manipulate production will have an impact on the investors. The shareholder value is based on the “business value,” which is estimated based upon the present value of the forecasted cash flows. Ed and Robin are giving them a false perception of their business value. The idea to inflate profit for their pockets is in no way ethical or legal. In this situation I would hope a red flag would be triggered.
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