This is a graded discussion: $20$ points possible

Ethical case with contribution margin

Read the following story then answer the four questions at the end for your initial post. The first two I am looking for accuracy in the numbers. If you answer #$3$ explain how you got to that number. Use critical thinking skills for question #$4$ and explain why you made the choice you did.

Danna Lumus, the marketing manager for a division that produces a variety of paper products, is considering the divisional manager's request for a sales forecast for a new line of paper napkins. The divisional manager has been gathering data so that he can choose between two different production processes. The first process would have a variable cost of $$10$ per case produced and total fixed cost of $$100,000.$ The second process would have a variable cost of $$6$ per case and total fixed cost of $$200,000.$ The selling price would be $$30$ per case. Danna had just completed a marketing analysis that projects annual sales of $30,000$ cases.

Danna is reluctant to report the $30,000$ forecast to the divisional manager. She knows that the first process would be labor intensive, whereas the second would be largely automated with little labor and no requirement for an additional production supervisor. If the first process is chosen, Jerry Johnson, a good friend, will be appointed as the line supervisor. If the second process is chosen, Jerry and an entire line of laborers will be laid off. After some consideration, Danna revises the projected sales downward to $22,000$ cases.

She believes that the revision downward is justified. Since it will lead the divisional manager to choose the manual system, it shows a sensitivity to the needs of current employees$-$a sensitivity that she is afraid her divisional manager does not possess. He is too focused on quantitative factors in his decision making and usually ignores the qualitative aspects.

What is the operating income for option $1$&$2$ if $30,000$ are cases sold?

What is the operating income for option $1$&$2$ if $22,000$ cases are sold?

At what number of cases sold will the operating income of option $1$&$2$ be the same?

If you were Danna, what number would you report to your boss, or how would you present the information in this instance?

After your post, respond to at least one peer's decision about what they would report to their boss. State whether you agree or disagree with their choice and why. Be detailed.

Original post due February $25$

Peer Response due March $3$