(a)
Ethical case:
In this case out of the three departments Person B has no interest in plumbing department. B wants to reallocate the company’s fixed cost of other two divisions to the plumbing divisions in order to improve the income. But it does not create any changes thereby, the board of directors suggested to close the plumbing department.
To discuss: If a division is reporting losses, does that mean that it should be closed.
(b)
Fixed Cost:
It is a cost which is constant in the short run, it is not related to any change in the production of goods or service, it will be fixed disregarding of increase or decrease in output. Fixed cost is generally incurred on fixed assets in long run.
To explain: Reallocation of fixed costs across the division was unethical.
(c)
To explain: What Person B should do?
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Managerial Accounting: Tools For Business Decision Making, Seventh Edition Wileyplus Card
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