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Ethics: Jolly Giant Company product sales between divisions

Jolly Giant Company has two divisions, the Can Division and the Food Division. The Food Division may purchase cans from the Can Division or from outside suppliers. The Can Division sells can products both internally and externally. The market price for cans is $100 per 1,000 cans. Dan Jacobs is the controller of the Food Division, and Bonnie Clark is the controller of the Can Division.

The following conversation took place between Dan and Bonnie: Dan: I hear you are having problems selling cans out of your division. Maybe I can help. Bonnie: You've got that right. We're producing and selling at only 70% of our capacity to outsiders. Last year we were selling all we could make. It would help a great deal if your division would divert some of your purchases to our division so we could use up our capacity. After all, we are part of the same company. Dan: What kind of price could you give me? Bonnie: Well, you know as well as I that we are under strict profit responsibility in our divisions, so I would expect to get market price, $100 for 1,000 cans. Dan: I'm not so sure we can swing that. I was expecting a price break from a "sister" division. Bonnie: Hey, I can only take this "sister" stuff so far. If I give you a price break, our profits will fall from last year's levels. I don't think I could explain that. I'm sorry, but I must remain firm--market price. After all, it's only fair--that's what you would have to pay from an external supplier. Dan: Fair or not, I think we'll pass. Sorry we couldn't have helped.

Was Dan behaving ethically by trying to force the Can Division into a price break? Comment on Bonnie's reactions.

Solution Preview

The philosophy of business:

If we accept the premise that for-profit business exists to benefit the owners (stockholders), then running a successful business entails producing a profit. That profit can then be returned to the shareholders in two forms: current cash dividends and longer-term appreciation in the price of the common stock.

Business goals are always to maximize profit. A larger view would encompass all the stakeholders, of which shareholders are one group. Other stakeholders would include employees, customers, vendors and maybe even the general society, as a whole. A good business philosophy would try to serve all groups of stakeholders, and business ethics is a part of the total philosophy.

If we understand that a business's main purpose is to maximize the returns to its shareholders, then might it be seen as unethical for ...

Solution Summary

In a 559 word solution, first the philosophy of business in general is discussed following by specifics of this company situation. The three paragraphs of ethical conclusions present views from each division plus a general view company-wide.