Question

Comfy Carrier Systems, Inc. (CCS) modifies vans that seat 15–20 people by adding additional safety features or wheelchair ramps. Most of its customers are cities and counties, who use the vans to transport school children, the elderly, or the handicapped. The company has specialized in a no-frills approach, emphasizing safety, high quality, and low cost. The company's president was quoted as saying, "Let the other guys make a van pretty. We get people where they need to go—faster, better, and cheaper than anybody else."

The company obtains jobs by being the lowest bidder in a sealed bidding process. Recently, the company was solicited by a top-10 college to submit a bid for a van to be used by its athletic team. Some specialized items were required, such as the school's logo on the outside of the van, and the vinyl seats had to be covered in school colors. The company submitted a bid, and was very surprised to obtain it.

When the job was being prepared, the job manager pointed out that several extra costs could result in this job showing a loss. The boss, an ardent supporter of sports in general and this team in particular, told the manager to just record the standard labor and overhead cost for this job. He says that they could use the preset rate for specialized jobs, and increase the overhead application rate (used in submitting bids) by 5% for future routine jobs. "After all," he says, "nobody else comes close to our price anyway. This could start a whole new line of business for us."

Required:

1.   Who are the stakeholders in the decision to increase overhead for routine jobs?

2.   Is the decision to subsidize special jobs by increasing the overhead rate on routine jobs ethical?  Briefly explain.

Answer 1

1) Stakeholders are key to the organisation. They can affect or be affected by the organization decisions and policies. Stakeholders in the decision to increase overhead for routine jobs are:

Customers who purchase vans by CCS, Inc.

Employees of CCS,Inc.

Customers who purchase the sports van that is the school authorities.

Shareholders of CCS, Inc.

Government authorities.

2) The decision to subsidize special jobs by increasing the overhead rate on routine jobs is not ethical. The company may increase its profitability but in long term it may loose its existing customers who purchase the standard vans. Therefore, in order to gain new customers CCS, Inc. should not compromise with its existing customers by increasing overhead rate in routine jobs. Hence for short term benefit long term goal should not be compromised.

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