Data analysis and governance. Nordic Wind makes downhill skis. Sales of the skis have 1.

a. Labour cost savings, been very steady over the past ten years. Helen Gibbs, the manager of the department that

$780,000 manufactures the skis, is keen on introducing robots into the department to improve production quality. To obtain funding, Gibbs knows that she will need to justify the investment in

| terms of labour cost savings. Gibbs estimates average annual labour costs in the department 522 | carter to of $1,449,000 over the past ten years. Labour costs over the past three years have averaged $960,000. If robots are introduced, labour costs would decrease to $660,000 per year. Average savings in labour costs of at least $480,000 per year are needed to justify the investment in robots. Gibbs uses the $1,440,000 number in her analysis. She then asks Joan Mistry, the management accountant, to review her calculations before she submits the robot proposal to senior management.

Mistry has a problem with Gibbs’s analysis. She feels that by using a long time period of ten years, Gibbs was able to show larger labour cost savings than was justified. Mistry knew that Gibbs would be unhappy with these findings.

Mistry also felt that the robot investment was good for the company. She tried to redo the analysis in a way that might show larger cost savings, even though she knew that the assumptions she was using were not appropriate. Nothing she tried could change the conclusion that the cost savings were not large enough to justify the investment in robots. Gibbs is upset when she sees Mistry’s report. She tells Mistry, “Try something else. I am sure you can come up with a set of assumptions under which this investment can be justified. You and I both know this is a good investment for the company to make. Quality is essential if we are to compete.”

REQUIRED 1. Calculate the labour cost savings if Gibbs uses average labour costs incurred

(a) over the past ten years and

(b) over the past three years. Does it make a difference in terms of justifying the robot investment?

2. Why do you think the average labour costs over the past ten years differ significantly from the average labour costs over the past three years?

3. Explain whether Joan Mistry’s initial attempts to redo the data analysis to justify the robot investment were ethical.

4. Identify the steps that Joan Mistry should follow in attempting to resolve this situation.

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