Problem

Keller Company requires its marketing managers to submit estimated cost-volume-profit data on all requests for new products, or expansions of a product line.

Gina Lamb is a new manager. Her calculations show a fixed cost for a new project at $100,000 and a variable cost of $5. Since the selling price is only $15 for the proposed product, 10,000 would need to be sold to break even. That is approximately twice the volume estimate for the first year. She shares her dismay with Anne Smythe, another manager.

Anne strongly advises her to revise her estimates. She points out that several of the costs that had been classified as fixed costs could be considered variable, since they are step costs and mixed costs. When the data has been revised classifying those costs as variable costs, the project appears viable.

Required:

1. Who are the stakeholders in this decision?

2. Is it ethical for Gina to revise the costs as indicated? Briefly explain.

3. What should Gina do?