Reference no: EM133141533

Question - Bodnar Company produces plastic patio furniture. Summary data from its 2021 income statement are as follows:

Revenues $4,000,000

Variable costs 2,400,000

Fixed costs 1,728,000

Operating income $ (128,000)

Sara Oves, Bodnar's president, is very concerned about Bodnar Company's poor profitability.

She asks Katie Hilton, production manager, and Kevin Jones, controller, to see if there are ways to reduce costs.

After 2 weeks, Katie returns with a proposal to reduce variable costs to 52% of revenues by reducing the costs Bodnar currently incurs for safe disposal of wasted plastic. Kevin is concerned that this would expose the company to potential environmental liabilities. He tells Katie, "We would need to estimate some of these potential environmental costs and include them in our analysis." "You can't do that," Katie replies. "We are not violating any laws. There is some possibility that we may have to incur environmental costs in the future, but if we bring it up now, this proposal will not go through because our senior management always assumes these costs to be larger than they turn out to be. The market is very tough, and we are in danger of shutting down the company and costing all of us our jobs. The only reason our competitors are making money is because they are doing exactly what I am proposing."

Required -

1. Calculate Bodnar Company's breakeven revenues for 2021.

2. Calculate Bodnar Company's breakeven revenues if variable costs are 52% of revenues.

3. Calculate Bodnar Company's operating income for 2021 if variable costs had been 52% of revenues.

4. Is Katie's proposal to incorrectly report environmental costs ethical? Provide arguments that support your view. In assessing the situation and providing arguments, you're required to list the specific standards in "Institute of Management Accountants (IMA) Statement of Ethical Professional Practice" (described in Exhibit P-6 on page 11) that the management accountant should consider.