Question: What is the central ethical conflict in this case? Howwould you have responded to the conflict in question? Whatcomplications or \"gray areas\" do you identify?
Focus on Ethics CISCO SYSTEMS, WALMART, TACO BELL, STARBUCKS,U-HAUL, GENERAL DYNAMICS, AND FARMERS INSURANCE: IS DIRECT LABOR AVARIABLE COST? The question as to whether direct labor is avariable cost is interesting from a cost estimation perspective,but it also presents an interesting ethical issue. Direct materialis always a variable cost. At the other extreme, depreciation onfixed facilities and infrastructure typically is not. What aboutdirect labor? Here it depends on the ability and willingness ofmanagement to adjust the labor force to current needs. Ifmanagement is able and willing to hire workers as needed and laythem off when activity declines, direct labor would be a variablecost. The contemporary trend at many companies seems to be in thisdirection. \"Companies are looking first to bring in contractworkers that they can quickly tap and zap without paying anybenefits or severance.\" In fact, the temps have recently been thefastest-growing sector of employment. \"And they aren't accountedfor as regular employees. This helps companies that use a lot ofthem, like Cisco Systems Inc., to drive up revenue per employee.\"\"The growing use of the just-in-time workforce is not the onlymeans by which companies are priming the productivity pump. Workerscomplain that many employers are taking advantage of outdated laborlaws by misclassifying them as salaried-exempt so they can skirtovertime pay. Walmart, Taco Bell, Starbucks, and U-Haul, amongothers, have been slapped with class actions. In the case ofGeneral Dynamics Corp., this resulted in a $100 million award thatis now on appeal. At Farmers Insurance, employees got $90 million.Some employers are so worried about the issue that they are nowdoing wage-and-hour audits.\" Is it ethical to \"tap and zap\"employees? What do you think? (For more on this issue, seeManagement Accounting Prac tice: Is Direct Labora Variable or aFixed Cost?, page 240.) Related to this issue is the ongoing debateabout raising the U.S. federal minimum wage. Some have suggestedthat $15 per hour is an appropriate level, citing the need for a\"living wage.\" Others argue that raising the minimum wage couldactually be detrimental to those it strives to help.
