Taylor is the management accountant for one of Friedman's largest manufacturing plants. The plant's general manager, David Magee, has just returned from a meeting at corporate headquarters where quality expectations were outlined for 2017. David calls Janice into his office to relay the corporate quality objective that total quality costs will not exceed 11% of total revenues by plant under any circumstances. David asks Janice to provide him with a list of options for meeting corporate headquarters' quality objective.

Prior to receiving the new corporate quality objective, Janice had collected information for all of the plant's possible options for improving both product quality and costs of quality. She was planning to introduce the idea of reengineering the manufacturing process at a one-time cost of $111,200, which would decrease product inspection costs by approximately 20% per year and was expected to reduce warranty repairs and customer support by an estimated 45% per year. After seeing the new corporate objective, Janice is reconsidering the reengineering idea. Janice crunches the numbers again. By increasing the cost-of-quality control training for production staff by $21,800 per year, the company would reduce inspection costs by 10% annually and reduce warranty repairs and customer support costs by 30% per year as well. She is leaning toward only presenting this latter option to David because this is the only option that meets the new corporate quality objective.

Revenue	5,000,000
Quality costs:
Testing of purchased materials	45,000
Quality control training for production staff	7,200
Warranty repairs	150,000
Quality design engineering	71,000
Customer support	54,000
Materials scrap	20,000
Product inspection	165,000
Engineering redesign of failed parts	31,500
Rework of failed parts	25,000

Requirement 1. Calculate the ratio of each budgeted costs-of-quality category (prevention, appraisal, internal failure, and external failure) to budgeted revenues for 2017. Are the budgeted total costs of quality as a percentage of budgeted revenues currently less than 11%? Begin by selecting the prevention costs. Calculate the ratio of prevention costs to revenues for 2017, then continue with appraisal, internal failure and external failure costs. Finally, calculate the total costs of quality and the total percentage of revenues. (Round percentages to two decimal places, X.XX%.)

The total costs of quality are currently (less or more?) than 11% of revenue.

Requirement 2. Which of the two quality options should Janice propose to the general manager, David Magee? Show the 2-year outcome for each option: (a) reengineer the manufacturing process for $111,200 and (b) increase quality training expenditure by $21,800 per year. Show the outcome for option (a). (Round percentages to two decimal places, X.XX%. Use parentheses or a minus sign for a decrease over current budget.)

Which of the two quality options should Janice propose to the general manager, David Magee? Janice should disclose

both options

or

option a

or

option b

to David Magee because

it is the only option which meets the corporate objective.

or

she has a responsibility to provide all relevant information to decision makers.

Requirement 3. Suppose Janice decides not to present the reengineering option to David. Is Janice's action unethical? Explain.

A. Ethical considerations are irrelevant. It is always in a company's best interest to allow its employees to take the course of action they feel is bes

B.Although the reengineering option may be a better long-term quality improvement option, Janice is under an obligation to present only the option she feels that management will want to see.

C. The management accountant's standards of ethical conduct require that information should be fairly and objectively communicated and that all relevant information should be disclosed. Failing to disclose option a (reengineering option) would be a violation of this standard.

D. Janice has the right to pick and choose the information she presents to the company's management. It is her responsibility to choose the direction that the company will take as it relates to quality improvements.

Costs of Quality Cost Total Revenue Prevention Costs % Appraisal Costs % Internal Failure Costs % External Failure Costs % Total costs of quality % Percentage of Costs of Quality Cost Total Revenue Prevention Costs Customer support % Engineering redesign of failed parts % Materials scrap Product inspection Quality control training for production staff Quality design engineering % Rework of failed parts Testing of purchased materials % Warranty repairs TULI Vow Vi Yuun % Option (a): reengineer manufacturing process Year One Total two-year increasel (decrease) over current budget Year Two Prevention costs Appraisal costs Internal failure costs External failure costs Total costs of quality Percentage of total revenue Increase/(decrease) over current budget % % Now show the outcome of option (b). (Round percentages to two decimal places, X.XX%. Use parentheses or a minus sign for a decrease over curre Option (b): increase quality training expenditure Total two-year increasel (decrease) over current budget Year One Year Two Prevention costs Appraisal costs Internal failure costs External failure costs Total costs of quality % % Percentage of total revenue Increase/(decrease) over current budget Costs of Quality Cost Total Revenue Prevention Costs % Appraisal Costs % Internal Failure Costs % External Failure Costs % Total costs of quality % Percentage of Costs of Quality Cost Total Revenue Prevention Costs Customer support % Engineering redesign of failed parts % Materials scrap Product inspection Quality control training for production staff Quality design engineering % Rework of failed parts Testing of purchased materials % Warranty repairs TULI Vow Vi Yuun % Option (a): reengineer manufacturing process Year One Total two-year increasel (decrease) over current budget Year Two Prevention costs Appraisal costs Internal failure costs External failure costs Total costs of quality Percentage of total revenue Increase/(decrease) over current budget % % Now show the outcome of option (b). (Round percentages to two decimal places, X.XX%. Use parentheses or a minus sign for a decrease over curre Option (b): increase quality training expenditure Total two-year increasel (decrease) over current budget Year One Year Two Prevention costs Appraisal costs Internal failure costs External failure costs Total costs of quality % % Percentage of total revenue Increase/(decrease) over current budget