Mountain Company manufactures Hiking shoes and walking shoes. The projected incomefrom the two products is: Hiking shoes

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Question:

Mountain Company manufactures Hiking shoes and walking shoes. The projected incomefrom the two products is: Hiking shoes Walking shoes Sales $ 900,000 $1,500,000 Less: Variable costs (540,000) (600,000) Contribution margin 360,000 900,000 Less: Direct fixed expenses (400,000) (440,000) 2 Segment margin (40,000) 460,000 Less: Common fixed costs (allocated) (100,000) (150,000) Net income (loss) $ (140,000) $ 310,000 After studying the latest market evaluates, project manager is considering recommending that the president drop the Hiking shoe line. If the line is dropped, however, the saleof walking shoes will drop by 5%. In addition, there is a personal complication for the project manager. Mountain is locatedin a rural area where unemployment is over 12%. If the Hiking shoe division is shutdown, there will be layoffs, including the manager of the division. Manager of the division and project manager have been friends since high school. Their families get together atleast once a month. Manager of the division's wife is principal of the local elementary school,a job she loves.

Required

a. Explain a project manager's ethical obligations in this matter

b. Should Mountain keep or drop the Hiking shoe line? Support your answer with appropriate calculations

c. Marketing department has come back to the project manager with an analysis that shows if advertising were increased by $50,000, then Hiking shoes sales would go up by5% and walking shoes by 3%. Should advertising be increased? Again, prove with your supporting calculations

d. If the Hiking shoe line is shut down, Mountain will have excess capacity. In carrying out her analyses, the project manager has been able to come up with only one viable alternative. The company could use part of the capacity to make canvas slippers. Estimated sales revenue from the slippers would be $300,000, and variable costs would be$170,000. Direct fixed expenses would be reduced to $100,000, and allocated fixed expenses would be $50,000. While this option would not use all the available capacity, it would reduce the number of layoffs. Should the project manager recommend that this option be carried out?