Advanced You are Financial Controller of a medium-sized engineering business. This business was family- owned and managed for many years but has recently been acquired by a large group to become its Engineering Division.

The first meeting of the management board with the newly appointed Divisional Managing Director has not gone well.

He commented on the results of the division:

• Sales and profits were well below budget for the month and cumulatively for the year, and the forecast for the rest of the year suggested no improvement.

• Working capital was well over budget.

• Even if budget were achieved the return on capital employed was well below group stan¬ dards.

He proposed a Total Quality Management (TQM) programme to change attitudes and improve results.

The initial responses of the managers to these comments were:

• The Production Director said there was a limit to what was possible with obsolete machines and facilities and only a very short-term order book.

• The Sales Director commented that it was impossible to get volume business when deliv¬ eries and quality were unreliable and designs out of date.

• The Technical Director said that there was little point in considering product improvements when the factory could not be bothered to update designs and the sales executives were reluctant to discuss new ideas with new poten¬ tial customers.

You have been asked to prepare reports for the next management board meeting to enable a more constructive discussion.

You are required:

(a) to explain the critical success factors for the implementation of a programme of Total Quality Management. Emphasize the factors that are crucial in changing attitudes from those quoted; (11 marks)

(b) to explain how you would measure quality cost, and how the establishment of a system of measuring quality costs would contribute to a TQM programme. (9 marks)

(Total 20 marks)

CIMA Stage 4 Management Accounting -

Control and Audit