Posted: May 4th, 2016

Does the company have an ethical responsibility to fix the part?

Ken Martin is an engineer with a multinational aerospace firm that produces a jet engine widely used by airplane manufacturers. Ken recently became aware of a potential defect in an engine part. As the lead engineer responsible for the part, Ken required tests be performed to ascertain the conditions under which the part might fail. The results of the tests indicate that at low temperatures a critical seal may crack, possibly allowing fluids to leak into other portions of the engine. Although the risk of such a leak is very low, the consequences are potentially disastrous.

Questions to consider:

1. What are some of the options available to Ken?

2. Does the company have an ethical responsibility to fix the part? Why or why not?

3. Should the company consider the estimated cost of fixing the part in its decision-making process? Why or why not? Where the cost would be reported?
Which of the following is a true statement pertaining to segment income statements?
a) only present the individual segments’ net income, not total company net income
b) only include variable cost
c) Do not present a segment margin
d) Do not include arbitrarily allocated common fixed expenses when calculating segment margin
e) all the above