Practical Management Science
Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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**Ethics and Pressure to Improve Profit Plans**

Art Conroy is the assistant controller of New City Muffler, Inc., a subsidiary of New City Automotive, which manufactures tailpipes, mufflers, and catalytic converters at several plants throughout North America. Due to pressure for lower selling prices, New City Muffler has experienced disappointing financial results in recent years, with corporate headquarters threatening to close the plant.

Conroy's responsibilities include presenting the plant's financial plans for the upcoming year to corporate officers and the board of directors. In preparation for this, Conroy noted that a key feature of the budget presentation was a profit-volume graph showcasing an increase in profits and a reduction in the break-even point.

Curious about how these improvements would be achieved, Conroy discussed with Paula Mitchell, the plant manager. Mitchell indicated that a planned increase in productivity would reduce variable costs and enhance the contribution margin ratio.

When pressed on how productivity would be increased, Mitchell vaguely referred to raising the assembly line speed. Conroy raised concerns about potential labor issues, as union contracts dictated the assembly line speed. Mitchell feared that a negotiation over speed increases could provoke union backlash, possibly leading to plant closure. She emphasized that the speedup was crucial for preserving jobs and the plant itself, and believed employees would not notice a 2% or 3% increase. Mitchell advised focusing on the projected results rather than details, stating that achieving the budget's proposals could secure substantial bonuses.

**Required**  
What advice do you have for Art Conroy?
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Transcribed Image Text:**Ethics and Pressure to Improve Profit Plans** Art Conroy is the assistant controller of New City Muffler, Inc., a subsidiary of New City Automotive, which manufactures tailpipes, mufflers, and catalytic converters at several plants throughout North America. Due to pressure for lower selling prices, New City Muffler has experienced disappointing financial results in recent years, with corporate headquarters threatening to close the plant. Conroy's responsibilities include presenting the plant's financial plans for the upcoming year to corporate officers and the board of directors. In preparation for this, Conroy noted that a key feature of the budget presentation was a profit-volume graph showcasing an increase in profits and a reduction in the break-even point. Curious about how these improvements would be achieved, Conroy discussed with Paula Mitchell, the plant manager. Mitchell indicated that a planned increase in productivity would reduce variable costs and enhance the contribution margin ratio. When pressed on how productivity would be increased, Mitchell vaguely referred to raising the assembly line speed. Conroy raised concerns about potential labor issues, as union contracts dictated the assembly line speed. Mitchell feared that a negotiation over speed increases could provoke union backlash, possibly leading to plant closure. She emphasized that the speedup was crucial for preserving jobs and the plant itself, and believed employees would not notice a 2% or 3% increase. Mitchell advised focusing on the projected results rather than details, stating that achieving the budget's proposals could secure substantial bonuses. **Required** What advice do you have for Art Conroy?
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