[VitaDolce*]

Well not really me but my bestfriend ..... her proffesor gave her this as an assign ....
can you help her ????? please
Just answer the questions.....



Robert Buey became Chief Executive Officer of Phelps Manufacturing two years ago. At that time the company was reporting lagging profits and Robert was brought to “ stir things up”.
The company has three divisions: Electronics, Fiber optics and plumbing supplies and one of the first thing he did was to pressure his accountants to relocate some of the company’s fixed costs from the other two divisions to plumbing division.This effect to cause the plumbing division to report losses during the last two years; in the past it always reported low but acceptable net income. Robert felt that this strategy would shine a favorable shine on him in front of the board of directors because it meant that the electronics and fiber optics divisions look like they were improving. Given that these are “businesses of the future”. He believed that the stock market would react favorably to these increases while not penalizing the poor results of the plumbing division. Without this shift in the allocation of costs, the profit of the electronics and fiber optics divisions would not have improved.



The Board of Directors has suggested the plumbing division be
closed because it has been reporting losses. This would nearly mean 500
employees, many of whom have worked with Phelps their whole lives
and will lose their jobs.


Questions :
1. If a division is reporting losses,
does it necessarily mean that it
should be closed ?
2. Did Robert have considered
a correct strategy of reallocating
fixed costs to plumbing division,
Would you think this action
ethical?
3. What should Robert do ?
4. Are the Board of Directors
right in their suggestion to
close the plumbing division
since it has been incurring
losses ?



________________________________________________

THANK YOU !!!!

[mentlkase]

Well not really me but my bestfriend ..... her proffesor gave her this as an assign ....
can you help her ????? please
Just answer the questions.....
Robert Buey became Chief Executive Officer of Phelps Manufacturing two years ago. At that time the company was reporting lagging profits and Robert was brought to “ stir things up”.
The company has three divisions: Electronics, Fiber optics and plumbing supplies and one of the first thing he did was to pressure his accountants to relocate some of the company’s fixed costs from the other two divisions to plumbing division.This effect to cause the plumbing division to report losses during the last two years; in the past it always reported low but acceptable net income. Robert felt that this strategy would shine a favorable shine on him in front of the board of directors because it meant that the electronics and fiber optics divisions look like they were improving. Given that these are “businesses of the future”. He believed that the stock market would react favorably to these increases while not penalizing the poor results of the plumbing division. Without this shift in the allocation of costs, the profit of the electronics and fiber optics divisions would not have improved.

The Board of Directors has suggested the plumbing division be
closed because it has been reporting losses. This would nearly mean 500
employees, many of whom have worked with Phelps their whole lives
and will lose their jobs.


Questions :
1. If a division is reporting losses,
does it necessarily mean that it
should be closed ?
2. Did Robert have considered
a correct strategy of reallocating
fixed costs to plumbing division,
Would you think this action
ethical?
3. What should Robert do ?
4. Are the Board of Directors
right in their suggestion to
close the plumbing division
since it has been incurring
losses ?
________________________________________________

THANK YOU !!!!

Been a while since i took regular managerial but ill try n help.

1. No. The decision to shut down depends on how the costs are allocated. If there are shared costs or sunk costs that cannot be recovered... It is better for the dividon to continue to operate. The shutdown in this case will result in a lower incremental income resulting in a lower NI and thus a lower RE and so a lower SE

all the other ones are subjective.... but you should write no. and explain why.

[VitaDolce*]

Thanks

[Majah Flavah]

Thanks

sorry, i didn't have time to read the entire problem but just remember that allocating fixed costs is key, and that reporting a loss definitely does not mean it has to be closed. it all depends on the contribution margins of the actual division/product, relevant costs, and overhead.