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Mountain Company manufactures Hiking shoes and walking shoes. The projected incomefrom the two products is: Hiking...
Mountain Company manufactures Hiking shoes and walking shoes. The projected incomefrom the two products is: Hiking shoes Walking shoes Sales $ 900,000 $1,500,000 Less: Variable costs (540,000) (600,000) Contribution margin 360,000 900,000 Less: Direct fixed expenses (400,000) (440,000) 2 Segment margin (40,000) 460,000 Less: Common fixed costs (allocated) (100,000) (150,000) Net income (loss) $ (140,000) $ 310,000 After studying the latest market evaluates, project manager is considering recommending that the president drop the Hiking shoe line. If the line is dropped, however, the saleof walking shoes will drop by 5%. In addition, there is a personal complication for the project manager. Mountain is locatedin a rural area where unemployment is over 12%. If the Hiking shoe division is shutdown, there will be layoffs, including the manager of the division. Manager of the division and project manager have been friends since high school. Their families get together atleast once a month. Manager of the division's wife is principal of the local elementary school,a job she loves. Required a. Explain a project manager's ethical obligations in this matter b. Should Mountain keep or drop the Hiking shoe line? Support your answer with appropriate calculations c. Marketing department has come back to the project manager with an analysisthat shows if advertising were increased by $50,000, then Hiking shoes sales would go up by5% and walking shoes by 3%. Should advertising be increased? Again, prove withyour supporting calculations d. If the Hiking shoe line is shut down, Mountain will have excess capacity. In carrying out her analyses, the project manager has been able to come up with only one viable alternative. The company could use part of the capacity to make canvas slippers.Estimated sales revenue from the slippers would be $300,000, and variable costs would be$170,000. Direct fixed expenses would be reduced to $100,000, and allocated fixed expenses wouldbe $50,000. While this option would not use all the available capacity, it would reduce the number of layoffs. Should the project manager recommend that this option be carried out?
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| Hiking Shoe | Walking Shoe | |||
| Selling Price | 900,000.00 | 1,500,000.00 | ||
| (-)Variable Expense | 540,000.00 | 600,000.00 | ||
| Contribution Margin | 360,000.00 | 900,000.00 | ||
| (-)Fixed Expense | 400,000.00 | 440,000.00 | Product related fixed cost, won't be incurred if product is shutdown. | |
| Segment Margin | (40,000.00) | 460,000.00 | ||
| (-)Common Fixed cost | 100,000.00 | 150,000.00 | It has been followed that the Common fixed cost is unavoidable and to be allocated to the another line if one gets shutdown. | |
| Net Income | (140,000.00) | 310,000.00 | Another project will only be recommended if it get the income over and abover $170,000. | |
| Answer (a) - | Explain a project manager's ethical obligations in this matter | |
| Provisions - | ||
| Ethics is about making the best possible decisions concerning people, resources and the environment. | ||
| When handling project challenges that arise during the cause of a project, it is his duty to analyze the root cause of the issue and resolve it to favor the project goal. | ||
| As mentioned above, the professional ethics and practice of a project manager can sometimes be confusing and it’s difficult to draw a line between what is ethical and what is not. It should be divided into four broad sections: respect, responsibility, fairness and honesty | ||
| Facts of the Case - | ||
| Mountain is located in a rural area where unemployment is over 12%. If the Hiking shoe division is shutdown, there will be layoffs, including the manager of the division. Manager of the division and project manager have been friends since high school. Their families get together atleast once a month. Manager of the division's wife is principal of the local elementary school,a job she loves. | ||
| Decision | ||
| In such case Project manager should try to continue the project line supporting all the ethical factors but at the same time personal concerns should not be addressed while decision making. |
| Answer (b) - | Should Mountain keep or drop the Hiking shoe line? Support your answer with appropriate calculations | |||
| Decrease in the Sale of Walking shoe line by 5% | ||||
| Before | After | |||
| Selling Price | 1,500,000.00 | 1,425,000.00 | Decrease in sale by 5% | |
| (-)Variable Expense | 600,000.00 | 570,000.00 | Decrease in Variable cost by 5% | |
| Contribution Margin | 900,000.00 | 855,000.00 | ||
| (-)Fixed Expense | 440,000.00 | 440,000.00 | Product related fixed expense will remain unchange | |
| Segment Margin | 460,000.00 | 415,000.00 | ||
| (-)Common Fixed cost | 150,000.00 | 250,000.00 | When we consider only one line of project whole fixed cost will be allocated to that project i.e $100,000 + $150,000 | |
| Net Income | 310,000.00 | 165,000.00 | ||
| Earlier Income | ||||
| Hiking Shoe | (140,000.00) | Loss from Hiking shoe | ||
| Walking Shoe | 310,000.00 | Income from Walking shoe | ||
| Net Increase/(Decrease) | (5,000.00) | There is no overall increase in the income of the project, it's recommended to continue the project with Hiking Shoe. |
| Answer (c) - | Marketing department has come back to the project manager with an analysisthat shows if advertising were increased by $50,000, then Hiking shoes sales would go up by5% and walking shoes by 3%. Should advertising be increased? | ||||
| Hiking Shoe | Walking Shoe | Total | |||
| Selling Price | 945,000.00 | 1,545,000.00 | 2,490,000.00 | ||
| (-)Variable Expense | 567,000.00 | 618,000.00 | 1,185,000.00 | ||
| Contribution Margin | 378,000.00 | 927,000.00 | 1,305,000.00 | ||
| (-)Fixed Expense | 400,000.00 | 440,000.00 | 840,000.00 | ||
| Segment Margin | (22,000.00) | 487,000.00 | 465,000.00 | ||
| (-)Common Fixed cost | 100,000.00 | 150,000.00 | 250,000.00 | ||
| (122,000.00) | 337,000.00 | 215,000.00 | |||
| (-)Advertisement Expense | 50,000.00 | ||||
| Net Income | 165,000.00 | ||||
| Earlier Income | |||||
| Hiking Shoe | (140,000.00) | ||||
| Walking Shoe | 310,000.00 | ||||
| Net Increase/(Decrease) | (5,000.00) | There is no overall increase in the income of the project, it's recommended to continue the project without incurring advertisement expense. |
| Answer (d) - | If the Hiking shoe line is shut down, Mountain will have excess capacity. In carrying out her analyses, the project manager has been able to come up with only one viable alternative. The company could use part of the capacity to make canvas slippers.Estimated sales revenue from the slippers would be $300,000, and variable costs would be$170,000. Direct fixed expenses would be reduced to $100,000, and allocated fixed expenses wouldbe $50,000. While this option would not use all the available capacity, it would reduce the number of layoffs. Should the project manager recommend that this option be carried out? | |||
| Canvas Slipper | Walking Shoe | |||
| Selling Price | 300,000.00 | 1,500,000.00 | ||
| (-)Variable Expense | 170,000.00 | 600,000.00 | ||
| Contribution Margin | 130,000.00 | 900,000.00 | ||
| (-)Fixed Expense | 100,000.00 | 440,000.00 | ||
| Segment Margin | 30,000.00 | 460,000.00 | ||
| (-)Common Fixed cost | 50,000.00 | 200,000.00 | Total Fixed expense are $250,000 if $50,000 allocated to canvas slipper the rest will be allocated to Walking shoes. | |
| Net Income | (20,000.00) | 260,000.00 | ||
 ekkarill92 answered 2 years agoRelated SolutionsMountain Company manufactures Hiking shoes and walking shoes. The projected incomefrom the two products is: Hiking...Mountain Company manufactures Hiking shoes and walking shoes.
The projected incomefrom the two products is: Hiking shoes Walking
shoes Sales $ 900,000 $1,500,000 Less: Variable costs (540,000)
(600,000) Contribution margin 360,000 900,000 Less: Direct fixed
expenses (400,000) (440,000) 2 Segment margin (40,000) 460,000
Less: Common fixed costs (allocated) (100,000) (150,000) Net income
(loss) $ (140,000) $ 310,000 After studying the latest market
evaluates, project manager is considering recommending that the
president drop the Hiking shoe line. If the line is...
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The following data are for March:
Standards
Mountain
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Valley
Stream
Direct materials
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Direct
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5 hours at
$60.50 per hour
6 hours at $81
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Variable
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of standard costs. The following data are for March:
Standards
Mountain
Mist
Valley
Stream
Direct
materials
3
ounces at $14.90 per ounce
4
ounces at $16.60 per ounce
Direct labor
5 hours at
$60.10 per hour
6 hours at $76
per hour
Variable overhead (per direct
labor-hour)
$48
$52.60
Fixed overhead (per month)
$342,225
$398,580
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labor-hours)
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Sweetwater Company manufactures two products, Mountain Mist and Valley Stream. The company prepares its master budget...Sweetwater Company manufactures two products, Mountain Mist and
Valley Stream. The company prepares its master budget on the basis
of standard costs. The following data are for March:
Standards
Mountain
Mist
Valley
Stream
Direct
materials
3
ounces at $14.90 per ounce
4
ounces at $16.60 per ounce
Direct labor
5 hours at
$60.10 per hour
6 hours at $76
per hour
Variable overhead (per direct
labor-hour)
$48
$52.60
Fixed overhead (per month)
$342,225
$398,580
Expected activity (direct
labor-hours)
5,850
7,800...
Sweetwater Company manufactures two products, Mountain Mist and Valley Stream. The company prepares its master budget...Sweetwater Company manufactures two products, Mountain Mist and
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of standard costs. The following data are for March:
Standards Mountain Mist Valley Stream
Direct materials 3 ounces at $14.80 per ounce 4 ounces at $17.20
per ounce
Direct labor 5 hours at $60.20 per hour 6 hours at $78 per
hour
Variable overhead (per direct labor-hour) $48 $53.20
Fixed overhead (per month) $364,425 $399,360
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Estimated annual
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