Question

As manager of the city-owned waste treatment facility for Alligator Park, Florida, Ann Paxton is in the process of preparing an annual expense budget. . Note that this is not a corporation, it’s a government entity, so there are no stockholders. While eating lunch at her desk she thought about the coming year. “Next year, my department will probably be asked to process some 8,000,000 gallons of waste. Our variable costs are about $0.10 per gallon and our fixed costs are about $1,100,000. So, the total cost should be somewhere around $1,900,000. I’d better submit a budget of around $2,300,000. The city’s tax revenues are down and the city controller will probably reduce whatever budget I submit by 10 percent. And what if I end up incurring higher expenses then anticipated? A new labor contract, for instance, could increase cost by more than $100,000. Or waste could be 500,000 gallons higher than estimated. The last thing I want is to incur more costs than budgeted. I’ve got to stay within budget to have any chance for a promotion out of this stinking department!” Required: Discuss whether or not it is ethical for Ann to submit a budget for an amount higher than the cost she expects to incur? In doing so, identify the stakeholders, i.e. the various individuals and groups who would be affected by her decision. How would each of them be affected by Ann’s proposed action? Review and compare the alternative approaches that Ann could take in preparing her budget that would avoid any ethical conflict. Show, in good form, the budget that you think Ann should submit.

Answer 1

Answer :

Particulars		Amount ($)
Estimated cost of budget		19,00,000
Budget proposed to be presented		23,00,000
Excess		4,00,000
Justifications
Increase contract cost		1,00,000
Additional waste variable cost	5,00,[email protected]	50,000
Reduction in expected budget disbursement	23,00,000@10%	2,30,000
Total		3,80,000

Ann's contention to submit higher budget is not justified. Efficient of Ann's decision would mean Government might increase taxes to compensate increased budget and individual end up bearing the burden.