You are a consultant for Watch Tech, Inc., a manufacturer of fitness watches. Currently, the firm manufactures both the electrical components for the watches and the watch casing which comes in a variety of finishes. The production manager, Sarah Adler, recently received a proposal from Custom Metal Works Corporation to manufacture the watch casing for the Watch Tech, Inc. watches. Watch Tech will be able to close down its Watch Casing Department if it purchases the casings from outside. Adler asked Watch Tech's controller to prepare an analysis of the costs that could be saved if the Watch Casing Department were closed. Below are the annual cost savings from that analysis:

Building rental (The Watch Casing Department occupies one-sixth of the factory building, which Watch Tech rents for $354,000 per year): $59,000.

Salary of the Watch Casing Department supervisor: $100,000.

Sarah Adler and the controller went to lunch this week and Adler learned that Watch Tech currently spends $78,000 a year to rent storage space to store the completed watches. However, all of the storage needs could be met in the existing factory building without requiring additional storage rental if the Watch Casing Department was discontinued. Also, the Watch Casing Department supervisor would be retained by Watch Tech even if the department were closed. The supervisor would replace the manager of the assembly department who will be retiring soon. All of Watch Tech's department supervisors earn the same salary.

Part 1:

Advise Adler on her decision. What is the "real" cost of operating the Watch Casing Department? Controllable/Uncontrollable? Consider the cost of the space occupied by the Watch Casing Department and the supervisor's salary; what type of costs are these?

Part 2:

The controller was approached by his friend, John Kinney, who is the assistant supervisor of the Watch Casing Department. Kinney asked the controller to understate the cost savings of closing the Watch Casing Department because he is afraid he will be laid off if the department is closed. Kinney is hoping that the controller will understate the cost savings so that the production manager will lean towards keeping the department in operation. What are the controller's ethical responsibilities?