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hroughout North America. Because of pressure for lower selling prices, New City Muffler has had disappointing financial performance in recent years. Indeed, Conroy is aware of rumblings from corporate headquarters threatening to close the plant. One of Conroy's responsibilities is to present the plant's financial plans for the coming year to the corporate officers and board of directors. In preparing for the presentation, Conroy was in- rigued to note that the focal point of the budget presentation was a profit-volume graph projecting an increase in profits and a reduction in the break-even point. Curious as to how the improvement would be accomplished, Conroy ultimately spoke with Paula Mitchell, the plant manager. Mitchell indicated that a planned increase in productivity would educe variable costs and increase the contribution margin ratio. When asked how the productivity increase would be accomplished, Mitchell made a vague ference to increasing the speed of the assembly line. Conroy commented that speeding up the Esembly line could lead to labor problems because the speed of the line was set by union contract itchell responded that she was afraid that if the speedup were opened to negotiation, the unio puld make a big "stink" that could result in the plant being closed. She indicated that the speedu as the "only way to save the plant, our jobs, and the jobs of all plant employees." Besides, she d t believe employees would notice a 2% or 3% increase in speed. Mitchell concluded the meetin serving, "You need to emphasize the results we will accomplish next year, not the details of hc will accomplish those results. Top management does not want to be bored with details. If complish what we propose in the budget, we will be in for a big bonus."

hroughout North America. Because of pressure for lower selling prices, New City Muffler has had disappointing financial performance in recent years. Indeed, Conroy is aware of rumblings from corporate headquarters threatening to close the plant. One of Conroy's responsibilities is to present the plant's financial plans for the coming year to the corporate officers and board of directors. In preparing for the presentation, Conroy was in- rigued to note that the focal point of the budget presentation was a profit-volume graph projecting an increase in profits and a reduction in the break-even point. Curious as to how the improvement would be accomplished, Conroy ultimately spoke with Paula Mitchell, the plant manager. Mitchell indicated that a planned increase in productivity would educe variable costs and increase the contribution margin ratio. When asked how the productivity increase would be accomplished, Mitchell made a vague ference to increasing the speed of the assembly line. Conroy commented that speeding up the Esembly line could lead to labor problems because the speed of the line was set by union contract itchell responded that she was afraid that if the speedup were opened to negotiation, the unio puld make a big "stink" that could result in the plant being closed. She indicated that the speedu as the "only way to save the plant, our jobs, and the jobs of all plant employees." Besides, she d t believe employees would notice a 2% or 3% increase in speed. Mitchell concluded the meetin serving, "You need to emphasize the results we will accomplish next year, not the details of hc will accomplish those results. Top management does not want to be bored with details. If complish what we propose in the budget, we will be in for a big bonus."

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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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?
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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