Hanson Inc

question 177

Essay

Hanson Inc. requires its marketing managers to submit estimated cost-volume-profit data on all requests for new products or expansions of a product line.
Nancy Stephens is a new manager. Her calculations show a fixed cost for a new project at $100000 and a variable cost of $5. Since the selling price is only $15 for the proposed product 10000 units would need to be sold to break even. That is approximately twice the volume estimate for the first year. She shares her dismay with Patti Patterson another manager.
Patti strongly advises her to revise her estimates. She points out that several of the costs that had been classified as fixed costs could be considered variable since they are step costs and mixed costs. When the data has been revised classifying those costs as variable costs the project appears viable.
Required:
1. Who are the stakeholders in this decision?
2. Is it ethical for Nancy to revise the costs as indicated? Briefly explain.
3. What should Nancy do?

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Definitions:

Current-Year Prices

Prices of goods and services measured during the same year of analysis, not adjusted for inflation.

Base-Year Quantities

Quantities of goods and services in a specific base year used for comparison or calculation purposes in economic analysis.

Laspeyres Index

A measure of the change in the cost of purchasing a specified set of goods and services over time, using the quantities bought in a base period as weights.

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Legal statutes and regulations that govern the process by which individuals or enterprises can declare their inability to pay their debts and seek relief.