Ethics and quality. Information from a quality report for 2007 prepared by Lindsey Lavoie, assistant controller of Citocell, a manufacturer of electric motors, follows:

Revenues $12,000,000 On-line inspection 108,000 Warranty liability 312,000 Product testing 252,000 Scrap 276,000 Design engineering 240,000 Percentage of customer complaints 5%

On-time delivery 90%

Tadao Inaba, the plant manager of Citocell, is eligible for a bonus if the total cost of quality as a percentage ofrevenues is less than 10%, percentage of customer complaints is less than 4%, and on-time delivery exceeds 92%. Inaba is unhappy because, when preparing her report, Lavoie actually contacted customers to inquire ifthey had any complaints and if deliv¬

eries had been made on time. Inaba would have preferred Lavoie to be less proactive and wait for customers to complain. Inaba’s concern with Lavoie’s approach is that it introduces sub¬

jectivity into the numbers and also fails to capture the seriousness of customers’ concerns.

“When you wait for a customer to complain, you know they are complaining because it is something important. When you do customer surveys, customers mention whatever is on their mind, even ifit is not terribly important.”

John Roche, the controller, asks Lavoie to see him. He tells her about Inaba’s con¬

cerns. “I think Tadao has a point. See what you can do.” Lavoie is very confident that the customer complaints are genuine and that customers are concerned about late deliveries.

She believes it is important for Citocell to be proactive and obtain systematic and quick customer feedback, and then to use this information to make future improvements. She is also well aware that Citocell had not done customer surveys in the past, and that but for her surveys, Inaba would probably be eligible for the bonus. She is confused about how to handle Roche’s request.

Required 1. Calculate the ratio of each cost of quality category (prevention, appraisal, internal failure, and external failure) to revenues in 2007. Are the total costs of quality as a percentage ofrev¬

enues less than 10%?

2. Is John Roche’s suggestion to Lavoie to reconsider her numbers unethical? Would it be unethical for Lavoie to modify her analysis? What steps should Lavoie take to resolve this situation?