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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Lindell Manufacturing embarked on an ambitious quality program that is centered on continual improvement. This improvement is operationalized by declining quality costs from year to year. Lindell rewards plant managers, production supervisors, and workers with bonuses ranging from $1,000 to $10,000 if their factory meets its annual quality cost goals.

Len Smith, manager of Lindell’s Boise plant, felt obligated to do everything he could to provide this increase to his employees. Accordingly, he has decided to take the following actions during the last quarter of the year to meet the plant’s budgeted quality cost targets:

  1. a. Decrease inspections of the process and final product by 50% and transfer inspectors temporarily to quality training programs. Len believes this move will increase the inspectors’ awareness of the importance of quality; also, decreasing inspection will produce significantly less downtime and less rework. By increasing the output and decreasing the costs of internal failure, the plant can meet the budgeted reductions for internal failure costs. Also, by showing an increase in the costs of quality training, the budgeted level for prevention costs can be met.
  2. b. Delay replacing and repairing defective products until the beginning of the following year. While this may increase customer dissatisfaction somewhat, Len believes that most customers expect some inconvenience. Besides, the policy of promptly dealing with customers who are dissatisfied could be reinstated in 3 months. In the meantime, the action would significantly reduce the costs of external failure, allowing the plant to meet its budgeted target.
  3. c. Cancel scheduled worker visits to customers’ plants. This program, which has been very well received by customers, enables Lindell workers to see just how the machinery they make is used by the customer and also gives them first-hand information on any remaining problems with the machinery. Workers who went on previous customer site visits came back enthusiastic and committed to Lindell’s quality program. Lindell’s quality program staff believes that these visits will reduce defects during the following year.

Required:

  1. 1. Evaluate Len’s ethical behavior. In this evaluation, consider his concern for his employees. Was he justified in taking the actions described? If not, what should he have done?
  2. 2. Assume that the company views Len’s behavior as undesirable. What can the company do to discourage it?
  3. 3. Assume that Len is a CMA and a member of the IMA. Refer to the ethical code for management accountants in Chapter 1. Were any of these ethical standards violated?

1.

To determine

Discuss whether the plant manager’s conduct is ethical. Explain the course of action which should have been adopted.

Explanation

Ethical Conduct:

Ethical conduct involves indulging into fair practices and making equitable decisions. Ethical conduct requires sacrifice of the self-interest for the betterment of the society.

Plant manager’s conduct was not ethical, plant manager in order to increase employees’ bonus and achieve the targets indulged in activities that were not good for long term benefits of an organization and customer satisfaction.

Manager transferred inspection cost and transferred inspector to conduct training. This reduced internal failure costs but would result in increase in external failure costs significantly in subsequent periods. Due to this measure, customers’ perception about the products quality would also hampered and would have long term impact on the organization.

Manager delayed replacing and repairing products, it would reduce external failure costs; however, these costs would be incurred in subsequent period. In addition to this, customers of the company would be dissatisfied which would have a long term impact on the organization.

Manager also cancelled workers’ visits to customer’s plant...

2.

To determine

Explain the course of action which can be adopted by the company, on finding the action taken by plant manager unjustified.

3.

To determine

Identify the ethical codes that have been violated.

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