Lindell Manufacturing embarked on an ambitious quality program that is centered on continual improvement. This improvement is operationalized by declining quality costs from year toyear. Lindell rewards plant managers, production supervisors, and workers with bonuses ranging from $1,000 to $10,000 if their factory meets its annual quality cost goals.Len Smith, manager of Lindell’s Boise plant, felt obligated to do everything he could toprovide this increase to his employees. Accordingly, he has decided to take the following actionsduring the last quarter of the year to meet the plant’s budgeted quality cost targets:a. Decrease inspections of the process and final product by 50% and transfer inspectorstemporarily to quality training programs. Len believes this move will increase theinspectors’ awareness of the importance of quality; also, decreasing inspection willproduce significantly less downtime and less rework. By increasing the output anddecreasing the costs of internal failure, the plant can meet the budgeted reductions forinternal failure costs. Also, by showing an increase in the costs of quality training, thebudgeted level for prevention costs can be met.b. Delay replacing and repairing defective products until the beginning of the followingyear. While this may increase customer dissatisfaction somewhat, Len believes that mostcustomers expect some inconvenience. Besides, the policy of promptly dealing withcustomers who are dissatisfied could be reinstated in 3 months. In the meantime, theaction would significantly reduce the costs of external failure, allowing the plant to meetits budgeted target.c. Cancel scheduled worker visits to customers’ plants. This program, which has been verywell received by customers, enables Lindell workers to see just how the machinery theymake is used by the customer and also gives them first-hand information on any remainingproblems with the machinery. Workers who went on previous customer site visits cameback enthusiastic and committed to Lindell’s quality program. Lindell’s quality programstaff believes that these visits will reduce defects during the following year.Required:1. Evaluate Len’s ethical behavior. In this evaluation, consider his concern for his employees.Was he justified in taking the actions described? If not, what should he have done?2. Assume that the company views Len’s behavior as undesirable. What can the company doto discourage it?3. Assume that Len is a CMA and a member of the IMA. Refer to the ethical code formanagement accountants in Chapter 1. Were any of these ethical standards violated?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Lindell Manufacturing embarked on an ambitious quality program that is centered on continual improvement. This improvement is operationalized by declining quality costs from year to
year. Lindell rewards plant managers, production supervisors, and workers with bonuses ranging from $1,000 to $10,000 if their factory meets its annual quality cost goals.
Len Smith, manager of Lindell’s Boise plant, felt obligated to do everything he could to
provide this increase to his employees. Accordingly, he has decided to take the following actions
during the last quarter of the year to meet the plant’s budgeted quality cost targets:
a. Decrease inspections of the process and final product by 50% and transfer inspectors
temporarily to quality training programs. Len believes this move will increase the
inspectors’ awareness of the importance of quality; also, decreasing inspection will
produce significantly less downtime and less rework. By increasing the output and
decreasing the costs of internal failure, the plant can meet the budgeted reductions for
internal failure costs. Also, by showing an increase in the costs of quality training, the
budgeted level for prevention costs can be met.
b. Delay replacing and repairing defective products until the beginning of the following
year. While this may increase customer dissatisfaction somewhat, Len believes that most
customers expect some inconvenience. Besides, the policy of promptly dealing with
customers who are dissatisfied could be reinstated in 3 months. In the meantime, the
action would significantly reduce the costs of external failure, allowing the plant to meet
its budgeted target.
c. Cancel scheduled worker visits to customers’ plants. This program, which has been very
well received by customers, enables Lindell workers to see just how the machinery they
make is used by the customer and also gives them first-hand information on any remaining
problems with the machinery. Workers who went on previous customer site visits came
back enthusiastic and committed to Lindell’s quality program. Lindell’s quality program
staff believes that these visits will reduce defects during the following year.
Required:
1. Evaluate Len’s ethical behavior. In this evaluation, consider his concern for his employees.
Was he justified in taking the actions described? If not, what should he have done?
2. Assume that the company views Len’s behavior as undesirable. What can the company do
to discourage it?
3. Assume that Len is a CMA and a member of the IMA. Refer to the ethical code for
management accountants in Chapter 1. Were any of these ethical standards violated?

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