Missouri Chemical Company’s new president has learned that, for the past 4 years, the company has been dumping its industrial waste into the local river and falsifying reports to authorities about the levels of suspected cancer-causing materials in that waste. The plant manager says that there is no proof that the waste causes cancer and there are only a few fishing villages within a hundred miles down-river. If the company has to treat the substance to neutralize its potentially injurious effects and then transport it to a legal dump site, the com¬ pany’s variable and fixed costs would rise to a level that might make the firm uncompetitive. If the company loses its competitive advantage, 10,000 local em¬ ployees could become unemployed and the town’s economy could collapse.

Ethics and Quality Discussion 564 PART IV Cost Planning

a. What kinds of variable and fixed costs can you think of that would increase (or decrease) if the waste were treated rather than dumped? How would these costs affect product contribution margin?

b. What are the ethical conflicts the president faces?

c. What rationalizations can you detect that have been devised by plant employees?

d. What options and suggestions can you offer the president?

LO1