Case 10-1 Ethics Case: Columbus Park-Waste Treatment Facility

Executive summary
At the Columbus Park-Waste Treatment Facility, it is time for managers to prepare the annual expense budgets for the upcoming year. Those budgets will help the company to properly allocate expenses and predict profitability. The budgets are also a performance measure and promotion opportunities. As a manager, Ann Taylor is also subject to the task. However, there has been a decrease of the city’s tax revenue and she is almost certain that the city’s controller will reduce the proposed budget by 10 percent.
Overview
Ann Taylor wants to get a promotion. Considering that the budget might be reduced by 10 percent, she decides to propose a budget for an amount higher than the cost expected to be incurred. The manager estimates that her department could process some 9,000,000 gallons of waste. She anticipates that the waste could go up by 500,000 gallons and the cost of a new labor contract might increase by more than $300,000.
Issues addressed
The department costs are as follow: * variable costs at $0.20 per gallon * fixed costs at $2,400,000
Thus, the expense budget for the upcoming year should be: Variable Costs ($0.20 × 9,000,000) | $1,800,000 | Fixed costs | $2,400,000 | Total Expense budget | $4,200,000 |
However, Ann Taylor considers that the waste could increase by 500,000 and a new labor contract could increase cost by more than $300,000. With this information, the new expense budget should be: Variable Costs ($0.20 × 9,500,000) | $1,900,000 | Cost increase | 300,000 | Fixed costs | $2,400,000 | Total Expense budget | $4,600,000 |
Despite the fact that she could submit a budget of $4,600,000, Ann Taylor decides to submit a budget of $4,900,000, which is $700,000 more than what she might need. She is deliberately padding the budget in order not to