Ethical Behaviour in the Workplace and Cost-Benefit Analysis for Kreme Enterprise

Question: 1

Ethical behaviour is the catalyst to keeps the economy running.  Without ethics, there is no efficiency of operation in the economy.  Therefore, for the good of everyone, including profit-making companies, it is vitally important that business be conducted within an ethical framework that builds and sustains trust. The following is the situation you need to analyze:

As a human resources department executive in a private owned marketing communications company, one of your job descriptions is to review travelling reimbursement claims submitted by staff from all departments. You are happened to review the claim submitted by your friend John who is an executive in marketing department.

Your findings showed some false information submitted by John and you decide to confront your friend with your findings. When confronted, John responded “Of course the claim is not all correct.  All the other staff falsifies their claims and it is almost expected.”

Stunned by his confession, you tell him that he has to resubmit an accurate reimbursement claim.  John responds to you, “You know what, I worked very hard but the boss has not rewarded me. You know how they have been making all of us working so hard to meet impossible deadlines and sales targets. They should be either hiring more staff or giving us a salary increment. I am entitled to this, and I refuse to resubmit the claim.”

Required:

a.What do you think of John’s argument?  Support your answer with reference to the code of ethics.

b.How should you approach John in this situation?

c.What should you do if John refuses to take your advice and why?

Question 2

ObjectivesTo be able to identify the relevant and irrelevant costs and benefits associated with each feasible alternative with the greatest overall net benefit to aid decision making.

Marks allocated

Kreme Enterprise is a manufacturer and distributor of Crème Cake in Klang Valley. The company has lately been experiencing unpredictable sales of its sole product. The company’s contribution format income statement for the month of February 2018 is as follows:

Required:

a.Compute the company’s contribution margin ratio and its break-even point in both unit sales and Ringgit Malaysia (RM) sales.

b.The general manager believes that a RM14,700 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an RM75,500 increase in monthly sales.  If the general manager is right, what will be the effect on the company’s monthly net operating income or loss?

c.Refer to the data for Kreme Enterprise.  The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of RM12,000 in the monthly advertising budget, will double unit sales.  What will the new contribution format income statement look like if these changes are adopted?

d.Refer to the data for Kreme Enterprise.  The marketing manager thinks that a fancy new package for the transponder battery would help improve sales.  The new package would increase packaging costs by RM0.60 cents per unit.  Assuming no other changes, how many units would have to be sold each month to earn a profit of RM6,500.

e.Refer to the data for Kreme Enterprise.  Automation of the manufacturing process could reduce variable expenses by RM0.30 per unit.  However, fixed expenses would increase by RM30,000 each month.

i.Compute the new contribution margin ratio and the new break-even point in both unit sales and Ringgit Malaysia (RM) sales. 
ii.Assume that the company expects to sell 67,000 units next month.  Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are.  (Show data on a per unit and percentage basis, as well as in total, for each alternative.)
iii.Would you recommend that the company automate its operations?  Explain.