As part of the management by exception philosophy, Luggage Manufacturing gives bonuses based on positive variances with respect to the following:

i. Using less materials than allowed in the flexible budget

ii. Using less labor hours than allowed in the flexible budget

iii. Lower than budgeted amount for costs of quality in the prevention and appraisal categories

iv. Lower variable costs per the flexible budget than variable costs per the master budget due to lower production

v. Lower fixed costs applied than budgeted

a. For each of these items, identify whether management may be unintentionally creating bad incentives and a poor performance system.

b. Choose one of the items and discuss how an unethical supervisor could act in a manner contrary to the Institute of Management Accountants’ Statement of Ethical Professional Practice Standards(competence, credibility, integrity, and confidentiality).

c. Discuss additional metrics that could be used in a balanced scorecard report to assess quality. Indicate in what quadrant those metrics would be found.