Written Assignment 4
Case Summary & Student Assignment
You are Evelyn Watts, a management accountant with Depricon Inc. You have been asked by your boss, Charles Drummond, to provide an analysis of options for meeting corporate headquarters’ quality objective.
Format of Report
The report should be no longer than four (4) written pages, double spaced, with an additional three (3) pages of appendices permitted. Appendices may be completed in Word or Excel.
The report is to be typewritten. Reports are to be submitted to the appropriate Dropbox on D2L. No reports will be accepted after the due date.
The format of the report should follow the following structure:
Cover page, identifying the case, date, your name and student number.
Introductory paragraph: This paragraph introduces the report, and outlines the major highlights of what is addressed in the report (no executive summary is required).
The required components of the report are clearly outlined, so there are no special instructions other than to ensure that you have answered the requirements.
Concluding paragraph: This paragraph should summarize your findings, and provide closure to the report.
Appendices: Appendices should have appropriate titles, and be referenced in the report.
Depricon Inc. manufactures machine parts for two leading Canadian manufacturers. Evelyn Watts is the management accountant for one of Depricon’s largest manufacturing plants. The plant’s general manager, Charles Drummond, has just returned from a meeting at corporate headquarters where quality expectations were outlined for 2018. Charles called Evelyn into his office to explain the corporate quality objectives. Top management has determined that total quality costs will not exceed 10 percent of total revenues, by plant, under any circumstances. Charles asks Evelyn to provide him with a list of options for meeting the corporate’s quality objective. The plant’s initial budgeted revenues and quality costs for 2018 are as follows:
Testing of purchased materials 48,000
Quality control training for production staff 7,500
Warranty repairs 123,000
Quality design engineering 72,000
Customer support 55,500
Materials scrap 18,000
Product inspection 153,000
Engineering redesign of failed parts 31,500
Rework of failed parts 27,000
Prior to receiving the new corporate quality objective, Evelyn had collected information for all of the plant’s possible options for improving both product quality and costs of quality. She was planning to introduce the idea of reengineering the manufacturing process at a one-time cost of $112,500, which would decrease product inspection costs by approximately 25 percent per year, and reduce warranty repairs and customer support by an estimated 40 percent per year. After seeing the new corporate objective, Evelyn is reconsidering the reengineering idea.
Evelyn returns to her office to work through the numbers to look for other alternatives. She concludes that by increasing the cost of quality control training by $22,500 per year, the company would reduce inspection costs by 10 percent annually, and reduce warranty repairs and customer support costs by 20 percent per year as well. She is leaning toward only presenting this second option to Charles, because this is the only option that meets the new corporate quality objective.
Calculate the ratio of each budgeted costs-of-quality category (prevention, appraisal, internal failure, and external failure) to budgeted revenues for 2018. Are the budgeted total costs of quality as a percentage of budgeted revenues currently less than 10%?
Which of the two quality options should Evelyn propose to Charles? Show the two-year outcome for each option: (a) reengineer the manufacturing process for $112,500 and (b) increase quality training expenditure by $22,500 per year.
Suppose Evelyn decides not to present the reengineering option to Charles. Is this decision ethical? Explain.