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Styles Company X produces a molded hard plastic covers for l-pads. Summary data from its 2014 income statement are as follows. Revenues - $3,000,000 Variable costs - $2,100.000 Fixed costs - $1,050,000 Operating income - ($150,000) Company X produces molded hard plastic covers for I-pads. The Company X president, Jane Harvey, is very concerned about the firm's poor profitability. She asks Joe Smith, the Production Manager (managerial accounting) to see if there are any ways in which they can reduce costs. A few weeks later, Joe returns with a proposal to reduce variable costs to 58% of revenues by reducing the costs that the company currently incurs for safe disposal of wasted plastic. The Controller (Financial Accounting) is concerned that this would expose the company to potential environmental liabilities. He tells Joe that he thinks that the company would need to estimate some of the potential environmental costs and include them in the break-even analysis. Joe Smith disagrees. He feels that the company will not be violating any laws, and that there is only a possibility of environmental costs in the future. Calculate the breakeven revenues for 2014 using the information given above. 1. Re calculate the breakeven revenues if variable costs are 58% of revenues. 2. Calculate Freddie Corporation's operating income for 201 if variable costs had been 58% of revenues. 3. Discuss the following issues: What are the ethical issues involved in this case? Explain your answer. How do these issues relate to rules-based standard setting and principles-based standard setting? Do you feel that the Production Manager is acting improperly or immorally? Why or why not? Please explain your response. What stakeholders would be affected if the Controller implemented the Production Managers suggestions? Why

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