Harold's Bucket Factory

Harold is considering opening a new bucket factory in the Lower Mainland. One of his biggest prioritiesis running an ethical business. He is partnering with his friend, Selena, who is a Chartered ProfessionalAccountant. Harold wants to learn more about some ethical principles and how his business can followthem. For example, he has heard of corporate governance but doesn't really know how it applies to hisbusiness, nor any means of implementing it. He wonders if there are other ethical concepts which mayapply to him or Selena.

Harold has worked on some projections and has an idea about fixed and variable costs, but he is

confused about period and product costs. He isn't sure about what they are and why they're importantto small business owners. Harold projects that material for each bucket will total $1. He plans to payassembly line workers $20 per hour and each worker will be capable of making ten buckets an hour onaverage. Additionally, there will be other manufacturing expenses totaling $0.50 per bucket produced. Harold will be offering his two supervisors a salary of $60,000 each per year and his janitor will earn

$45,000 per year. Equipment and factory rental will amount to $8,000 per month, while

office/administration expenses will total $5,000 per month.

Harold is planning on selling each bucket for $8. He is wondering about the level of sales volume andrevenue he must generate on a monthly basis to avoid losing money. He has set aside $50,000 as a "lossfund" and is wondering how long it might last if he is 10% below the monthly break-even point. Harold iswondering what the annual sales level needs to be for him to earn a profit/salary of $80,000. Harold's uncle, Tony, has mentioned that he may need to purchase 1,000 buckets in the future, perhapsthree years from now. Tony would be willing to pay $6 per bucket if Harold agrees to accept the order.Harold feels the factory might be quite busy by that point and is unsure if he would have capacity. Still,he is wondering about what factors go into accepting or rejecting a large order like that and if it ispossible to make a recommendation right now.

Harold has heard a rumour that a local tire factory owner wants to retire and is willing to bear the

expenses of converting the factory, should a buyer agree to the purchase. The seller wants either

$400,000 today or ten annual payments of $50,000. Harold can borrow money from the bank at 3.5%and is wondering about which option is cheaper, should he decide to go in that direction.

Finally, Selena has given Harold a quick crash course on budgeting, but she is too busy to teach him

about budgetary analysis. Harold is confused about why some variances are favorable and

unfavorable. He is also unsure about the differences between a static and flexible budget. He wants anexplanation of how budgets are used to evaluate actual results and the terminology involved in theprocess.

Analyze Harold's business and advise him on the matters raised in the case. Make sure your

recommendations are well supported by quantitative and qualitative analysis which ties to the case

facts.