Wornell Industries Is Currently Purchasing Part No

question 12

Essay

Wornell Industries is currently purchasing part no. 456 from an outside supplier for $90 per unit. Because of supplier reliability problems, the company is considering producing the part internally in a currently idle manufacturing plant. Annual volume over the next five years is expected to total 400,000 units at variable manufacturing costs of $88 per unit.
Wornell must acquire $200,000 of new equipment if it reopens the plant. The equipment has a five-year service life, a $20,000 salvage value, and will be depreciated by the straight-line method. Normal equipment maintenance is expected to total $12,000 in year 4, and the equipment will be sold at the end of its life for $20,000, which represents $20,000 gain.
Required:
Rounding to the nearest dollar, use the net-present-value method (total-cost approach) and a 12% after-tax hurdle rate to determine whether Wornell should make or buy part no. 456. The company is subject to a 30% income tax rate.
Wornell is better off to make part no. 456.

Understand the role of ethical frameworks and spotlight questions in ethical decision-making.

Comprehend the factors influencing ethical managerial behavior, including personal, organizational, and external factors.

Recognize the stages of moral development according to Kohlberg and their implications on ethical leadership.

Acknowledge the impact of laws, regulations, and organizational culture on ethical behavior.

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Definitions:

Ethical Organization

An organization characterized by ethical practices, where ethical principles guide its decision making, relationships, and conduct towards employees, customers, and society.

Socially Responsible

Acting with consideration for the social, environmental, and economic impact of one's decisions and actions on the wider community.

Solar Panels

Devices that convert sunlight into electricity, consisting of multiple solar cells and used for power generation.

Ethical Organization

An organization that operates based on a set of moral principles, ensuring fairness, transparency, and integrity in its business practices.