FulRange Inc. produces complex printed circuits for stereo amplifiers. The cir¬ cuits are sold primarily to major component manufacturers, and any production overruns are sold to small manufacturers at a substantial discount. The small manufacturer segment appears to be very profitable because the basic operating budget assigns all fixed expenses to production for the major manufacturers, the only predictable market.

A common product defect that occurs in production is a “drift,” caused by failure to maintain precise heat levels during the production process. Rejects from the 100 percent testing program can be reworked to acceptable levels if the defect is drift. Elowever, in a recent analysis of customer complaints, George Wilson, the cost accountant, and the quality control engineer have ascertained that normal rework does not bring the circuits up to standard. Sampling shows that about one-half of the reworked circuits fail after extended, high-volume amplifier operation. The incidence of failure in the reworked circuits is projected to be about 10 percent over 1 to 5 years of operation.

Unfortunately, there is no way to determine which reworked circuits will fail because testing does not detect this problem. The rework process could be changed to correct the problem, but the cost-benefit analysis for the suggested change in the rework process indicates that it is not practicable. FulRange’s marketing analyst feels that this problem will have a significant impact on the company’s reputation and customer satisfaction if it is not corrected. Conse¬ quently, the board of directors would interpret this problem as having serious negative implications for the company’s profitability.

Wilson has included the circuit failure and rework problem in his report for the upcoming quarterly meeting of the board of directors. Due to the po¬ tential adverse economic impact, Wilson has followed a long-standing practice of highlighting this information. After reviewing the reports to be presented, the plant manager and her staff were upset and indicated to the controller that he should control his people better. “We can’t upset the board with this kind of material. Tell Wilson to tone that down. Maybe we can get it by this meeting and have some time to work on it. People who buy those cheap systems and play them that loud shouldn’t expect them to last forever.”

The controller called Wilson into his office and said, “George, you’ll have to bury this one. The probable failure of reworks can be referred to briefly in the oral presentation, but it should not be -mentioned or highlighted in the advance material mailed to the board.”

Wilson feels strongly that the board will be misinformed on a potentially serious loss of income if he follows the controller’s orders. Wilson discussed the problem with the quality control engineer, who simply remarked, “That’s your problem, George.”

a. Discuss the ethical considerations that George Wilson should recognize in deciding how to proceed in this matter.

b. Explain what ethical responsibilities should be accepted in this situation by 1. the controller. 2. the quality control engineer. 3. the plant manager and her staff.

c. What should George Wilson do in this situation? Explain your answer.

LO1