Below Exercises Answered - Assignment Example

Moreover, the unfinished products in the system are considered to be halfway complete in the production process giving the wafers a higher value than its actual value. By producing a large number of wafers, the firms’ asset in the production process will be seemingly high due to the wafers. Moreover, the fixed cost will remain the same while the variable cost will only rise to a reasonable amount considering the economies of large scale production. This is not an ethical way of boosting profits.

It gives shareholders a false impression of the firms’ financial position. This may also act to attract more investors to invest in the firm due to its portrayed high profits, which is not true leading to great losses for investors. The company management can be sued for going against the ethical practices in business management. The losses of Pacific Electric are big due to too much fixed asset in the firm. For example, the 2000 employees will have to be paid whether they work or not due to the employment contract.

The reduction of constructions will mean that most of the employees will be idol or not using their full potential at work due to the lesser work than usual. The plant and machine owned by the firm will also be contributing to the loss due to lower productivity and same rate of depreciation. Moreover, the idle plant and machinery will have a higher rate of depreciation than usual due to wear and tear. Therefore, due to under utilization of the fixed assets, the company is having big losses. The fixed cost can be converted to variable cost to reduce the loss associated with fixed cost; for example through review of employment contracts.

This will see the firm have few permanent employees and some casual employees whose services are sought only when the firm requires them. The company can also reduce the amount of fixed asset owned through disposing some of its