Imagine you are a manager of a chemical company. An accident has occurred in which chemicals leaked into the ground water nearby, the community is unaware. Assess the costs involved in cleaning up the water immediately (confessing) versus hiding the fact and possibly paying more in the future. Discuss the impact on profitability in both situations.

The costs incurred for an accidental chemical leak are going to associated with whatever agency that needs to be hired to clean up the mess along with the costs of having the contaminated area inspected after clean up. The cost of the leaked chemicals themselves should be considered. Other costs would include the public relations campaign – including the agency hired to handle this along with the choice of media to get the awareness out to the masses. How the company handles this accident is going to affect their profitability. The textbook states “brand names are capital assets that provide future net cash flows from repeat-purchase customers as long as the brand reputation holds up. To defraud customers by delivering less quality than the brand reputation promised would destroy the capitalized market value of the brand name (McGuigan, Moyer, & Harris, 2008, p.373).” The cost to the company’s bottom line if they are not going to make the public aware will have an impact both in the short-run and long-run. The short-term is going to see the upfront costs of clean up and regulatory agency fees. Eventually, the public will probably find out about this mishap and that will have a long-run impact on profitability. It will damage the company’s reputation. Consumers want to be made aware and ultimately trying to hide a dangerous mistake, like a chemical leak, will cost them because consumers will go elsewhere.
From the first e-Activity, assess the factors involved in conducting a break-even analysis. Determine the conditions that may exist for a manager of this good or service may decide to move forward with operations even with the initial costs of operations is more than the potential revenue.

From the first e-Activity, assess the factors involved in conducting a break-even analysis. Determine the conditions that may exist for a manager of this good or service may decide to move forward with operations even with the initial costs of operations is more than the potential revenue.

“ A break-even situation (zero profit) occurs whenever total revenue equals total cost (McGuigan, Moyer, & Harris, 2008, p.317).” Economic costs include both accounting costs (actual money spent) and opportunity costs (money foregone from some other course of action). Starting up a one person concierge service you would have the following accounting costs – salary, computer, utilities, & advertising expenses. An opportunity cost would be the option to get a job at the local mall. Here’s an example from buzzle.com to show how this can be calculated:
“ Mathematically speaking, the opportunity cost figure is nothing but the difference between the value of the selected alternative and the value of the next best alternative.
Problem: Noel has just graduated from medical college and he has been offered a job at one of the most prestigious hospitals in town. The job would pay him $45, 000 a year. However, his uncle, who runs a health care and fitness center, has also offered him a position for $35, 000 a year. However, Noel wishes to enroll for a medical research program at a foreign university, which would cost him $38, 000, and eventually does so. Calculate his opportunity cost.
Solution: Number of Economic Alternatives = 3 ($45, 000 job, $35, 000 job and -$38, 000 research program)
Desired Alternative = - 38, 000 (shown in negative as it this alternative would cost the subject rather than earn him financial remuneration)
Next Best Alternative = 45, 000

Since, Opportunity Cost = Cost of Selected Alternative - Cost of Next Best Alternative
Therefore, Opportunity Cost = -38, 000 -45, 000 = -83, 000

So, his opportunity cost not only includes the cost his Desired Alternative would incur but also the value of the Next Best Alternative which he gives up.”
The concierge business would decide to move forward and offer this service even when the initial costs of operations are more than the potential revenue as long as they can determine a long-run need for this service that will eventually break-even and start earning them a profit that is better than getting a job at the local mall.
Resources:
McGuigan, J.R., Moyer, R.C., & Harris, F.H.D. (2008). Managerial economics: Applications, strategy, and tactics (12th ed.). Mason, OH: South-Western Cengage Learning. http://www.investorwords.com/16381/economic_cost.html http://www.buzzle.com/articles/opportunity-cost-examples.html