Beruflich Dokumente
Kultur Dokumente
9.
10.
11.
8.
59
EXERCISES
141
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Internal failure
Prevention
Internal failure
External failure
External failure
External failure
Prevention
Internal failure
Appraisal
Internal failure
External failure
Appraisal
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
60
Prevention
Prevention
External failure
Prevention
External failure
Prevention
Prevention
Appraisal
External failure
Prevention
Appraisal
142
1.
Activity rates:
Warranty:
Scrap:
Inspection:
Training:
Product cost:
Warranty:
$80 1,700....................
$80 850.......................
Scrap:
$36 3,400....................
$36 850.......................
Inspection:
$15 3,400....................
$15 1,700....................
Training:
$250 85.......................
$250 85.......................
Total assigned...................
Divided by units.................
Unit cost........................
Carburetor A
Carburetor B
$136,000
$ 68,000
122,400
30,600
51,000
25,500
21,250
$330,650
170,000
$
1.95*
21,250
$145,350
340,000
$
0.43*
*Rounded.
Carburetor A has more than four times the amount of quality costs assigned
than Carburetor B. Thus, A appears to be the lower-quality product.
2.
The unit quality cost can be used to rank products in order of the lowest
quality to that of the highest. This information can then be used to determine
where quality improvement efforts should be focused. It may reveal, for
example, that products follow the Pareto Principle: 20% of the products are
causing 80% of the quality problems. (The Pareto Principle claims that 20% of
the people do 80% of the work in any organization.)
60
143
1.
Brown Company
Quality Cost Report
For the Year Ended December 31, 2010
Quality Costs
Percentage of
Sales
Prevention costs:
Design review.................
Quality training...............
$405,000
135,000
$ 540,000
Appraisal costs:
Materials inspection.......
Process acceptance.......
Product inspection.........
$ 54,000
67,500
40,500
162,000
2.00
$ 67,500
47,250
114,750
1.42
$135,000
270,000
128,250
61
533,250
$1,350,000
6.67%
6.58
16.67%
143
Concluded
2.
Relative Distribution of Quality Costs
Percentage of Total
Quality Costs
100
80
60
40
20
0
Quality Costs
Prevention
Appraisal
Internal Failure
External Failure
External Failure
40%
40%
8%
Internal Failure
Prevention
12%
Appraisal
Failure costs are almost 50% of the total costs. This indicates that there is
still ample opportunity for improving quality by investing more in prevention
and appraisal activities.
62
144
1.
Quality costs:
Year 1: $2,100,000 (0.21
Year 2: $1,980,000 (0.18
Year 3: $1,540,000 (0.14
Year 4: $1,200,000 (0.10
$10,000,000)
$11,000,000)
$11,000,000)
$12,000,000)
3.
Sales...................................
Variable expenses.............
Contribution margin....
a
Year 3 No Change
$ 11,000,000
7,236,842a
$ 3,763,158
Year 3 Change
$ 11,000,000
6,345,263b
$ 4,654,737
$125 $11,000,000/$190.
Increase in profitability:
$4,654,737 $3,763,158 = $891,579
63
145
1.
2.
Internal failure:
External failure:
Appraisal:
Prevention:
$2,250,000/$7,500,000 = 30%
$3,000,000/$7,500,000 = 40%
$1,350,000/$7,500,000 = 18%
$900,000/$7,500,000 = 12%
I nternal Failure
18%
40%
External Failure
The percentage of quality costs spent on internal and external failures is too
high. If costs are reduced to 2.5%, then the company is approaching the goal
of zero defects. As zero defects is approached, failure costs will approach
zero, leaving the bulk of quality costs in the prevention and appraisal
categories. Of these two categories, the prevention category would dominate.
64
145
3.
Continued
Internal failure:
External failure:
Appraisal:
Prevention:
$112,500/$937,500 = 12%
$75,000/$937,500 = 8%
$281,250/$937,500 = 30%
$468,750/$937,500 = 50%
12%
External Failure
8%
Prevention
50%
30%
Appraisal
Quality costs are better distributed than in 2006. Control costs account for
80% of the total quality costs (versus only 30% in 2006). Failure costs have
shrunk from 70% of the total in 2006 to only 20% in 2010. Moreover, total
quality costs have shrunk from 25% of sales to 2.5% of sales. Costs in every
category have been reduced. From an activity-based management
perspective, further reductions are possibleat least in the failure
categories. These are non-value-added costs and, in theory, can and should
be reduced to zero.
4.
Some external failure costs are not measured and reported in the accounting
records. If the multiplier effect were four (for example), then in 2010, the
external failure costs would be $225,000 ([4 $75,000] $75,000) higher than
reported. Given the reality of hidden costs, there is some validity to his point
of view and it may be wise to invest additional funds for control activities.
65
145
5.
Concluded
146
1.
$160,000
160,000
200,000
120,000
40,000
184,000*
$ 864,000
66
146
2.
Concluded
3.
All of the same activities would be adopted plus prototype testing. Of the
activities adopted, training, supplier evaluation, engineering redesign, and
prototype testing are all prevention activities and so would not be counted in
the cost reduction calculation. Failure costs would now be $104,000
(prototype addition reduces failure costs by an additional $80,000). The initial
failure and appraisal costs are $1,600,000 ($1,440,000 + $160,000). The ending
failure and appraisal costs are the sum of the current appraisal costs, ending
failure costs, and the cost of adding process control: $160,000 + $104,000 +
$200,000 = $464,000. Thus, the cost reductions counted for the bonus pool
would be $1,136,000 ($1,600,000 $464,000), and the bonus would be
$113,600 (0.10 $1,136,000). This approach has some merit as it encourages
managers to invest in value-added activities and avoid the temptation of
reducing prevention costs prematurely. It is possible, however, that some
prevention activities are not really worth doing, and this approach may lead
to an overinvestment in this category.
67
147
1.
2.
Prevention costs:
Training program.................
Supplier evaluation..............
Total prevention..............
Appraisal costs:
Test labor..............................
Inspection labor...................
Total appraisal................
Internal failure costs:
Scrap.....................................
Rework..................................
Total internal failure.......
External failure costs:
Consumer complaints.........
Lost sales, incorrect labeling
Total external failure......
Total quality costs.....................
Actual Costs*
2010
Long-Range
Target Costs
Variance
$ 6,000
13,000
$ 19,000
$ 3,750
4,688
$ 8,438
$ 2,250 U
8,312 U
$ 10,562 U
$ 10,000
30,000
$ 40,000
$ 4,687
2,813
$ 7,500
$ 5,313 U
27,187 U
$ 32,500 U
$ 18,750
12,500
$ 31,250
$ 2,812
0
$ 2,812
$ 15,938 U
12,500 U
$ 28,438 U
$ 6,250
0
$ 6,250
$ 96,500
$ 6,250 U
0
$ 6,250 U
$ 77,750 U
Percent of sales.........................
12.9%
0
0
$
0
$18,750
2.5%
10.4%
*Adjusted for sales of $750,000 [Uses the actual variable cost ratios of 2010
to compute the actual unit-level variable costs for this level of activity;
prevention costs are discretionary fixed and so are assumed to not change
as sales increase; all other costs are assumed to vary with sales volume and
so are adjusted to the $750,000 level; for example, test labor is ($8,000/
$600,000) $750,000 = $10,000].
68
147
Concluded
3.
4.
There would be a $77,750 increase in profits in 2015 if total quality costs are
2.5% of sales and the targeted distribution is achieved (the $77,750 increase
is the savings reported in the long-range performance report in Requirement
2).
148
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
Prevention
Prevention
Internal failure
External failure (societal)
Detection
Prevention
Internal failure
External failure (societal)
Detection
External failure (societal)
Prevention
External failure (private)
Internal failure
Detection
Internal failure
Detection
149
69
1.
Hender Chemicals
Environmental Cost Report
For the Year Ended December 31, 2010
Environmental Costs
Prevention costs:
Evaluating suppliers.....................
Recycling products.......................
Detection costs:
Inspecting products/processes...
Developing perf. measures..........
Internal failure costs:
Treating toxic waste......................
Operating equipment....................
Licensing facilities........................
External failure costs:
Settling claims...............................
Cleanup of soil...............................
Totals..................................................
Percentage*
$ 120,000
75,000
$ 195,000
$ 600,000
60,000
660,000
1.10
$4,800,000
840,000
360,000
6,000,000
10.00
$1,200,000
1,800,000
3,000,000
$ 9,855,000
0.33%
5.00
16.43%
Prevention
2%
Detection
7%
External Failure
30%
Internal Failure
61%
This distribution reveals that the company is paying little attention to preventing
and detecting environmental costs. To improve environmental performance,
much more needs to be invested in the prevention and detection categories.
1410
70
1.
Both items should be added to the external failure costs category in the
report. The first item would add $525,000 and is a private cost. The second
adds $1,200,000 and is a societal cost. Under a full costing regime, the
$1,200,000 should also be included in the report. Often, however, only private
costs will be included.
2.
Hender caused the opportunity cost, and many would argue that it should be
disclosed. Whether it will voluntarily disclose this cost is questionable.
Management would likely feel that such disclosure would draw unfavorable
attention to the company and damage its image.
Perhaps if the disclosure is coupled with an announcement of the cleanup of
the river and lake, then it could be turned to the advantage of the company:
We are undertaking a cleanup, and one of the major benefits to the
community is the restoration of the fishing and recreational opportunities
worth $1,200,000 to the community.
71
PROBLEMS
1411
1.
2.
At the end of three years, quality costs will be 4% of sales, a reduction equal
to 12% of sales.
Savings = 0.12 $92 100,000 = $1,104,000
Increase in unit contribution margin = $1,104,000/100,000
= $11.04
Projected unit CM = $11.04 + ($92 $90) = $13.04
Projected total CM at $92 price = $13.04 100,000
= $1,304,000
Price decreases:
$1.00: Total CM = $12.04 110,000 = $1,324,400
$2.00: Total CM = $11.04 120,000 = $1,324,800
$3.00: Total CM = $10.04 130,000 = $1,305,200
Recommended decrease is from $92 to $90.
Increase in contribution margin:
$ 1,324,800
( 1,304,000)
$
20,800
72
1411 Concluded
3.
To find the point where the price should first be reduced, we need to find the
point where total contribution margin remains unchanged. Let X = CM/Unit.
Current CM = 100,000X
New CM = 110,000(X $1)
100,000X = 110,000(X $1)
10,000X = $110,000
X = $11
When the unit CM is greater than $11, the price should be reduced by $1.00.
To find this point in time:
Current CM = $92 $90 = $2
Gain needed = $11 $2 = $9
Annual CM needed = $900,000 ($9 100,000)
Quarterly CM needed = $900,000/4 = $225,000
Quarterly percent of sales needed = $225,000/$2,300,000
= 9.8%
At 1% per quarter, it will take 9.8 quarters to gain $9 per unit. Thus, after 9.8
quarters, the price can decrease by $1.
4.
73
1412
1.
Quality Costs
Prevention costs:
Quality training.......................
Appraisal costs:
Product acceptance...............
Internal failure costs:
Scrap........................................
Rework.....................................
0.2%
$ 240,000
1.6
$ 450,000
270,000
$ 720,000
4.8
90,000
150,000
121,500
45,000
$ 406,500
$1,396,500
30,000
Percentage of Sales
2.7
9.3%
Profits: $1,500,000
Quality costs: $1,396,500
Quality costs/Sales = 9.3%
Quality costs/Profits = 93%
Wayne should be concerned as the quality cost ratio is 9.3%, and the quality
costs are almost as large as income. Although the ratio is lower than the 20 to
30% range that many companies apparently have, there is still ample
opportunity for improvement.
3.
Prevention:
Appraisal:
Internal failure:
External failure:
$30,000/$1,396,500 = 2.1%
$240,000/$1,396,500 = 17.2%
$720,000/$1,396,500 = 51.6%
$406,500/$1,396,500 = 29.1%
74
1412 Concluded
The pie chart is as follows:
Quality Costs
Internal Failure
51.6%
Appraisal 17.2%
2.1%
Prevention
29.1%
External Failure
Too much is spent on failure costs. These costs are non-value-added costs
and should eventually be eliminated. Prevention and appraisal activities
should be given much more emphasis. If anything, experiences of real-world
companies (e.g., Tennant and Westinghouse) indicate that the control costs
should be 80% and the failure costs 20%. The distribution of quality costs
needs to be reversed!
4.
The company should increase prevention and appraisal costs. The additional
amounts spent on these programs will be recouped with additional savings
from a resulting decrease in failure costs.
5.
75
1413
1.
Prevention costs:
Quality planning (F).....................
New product review (F)...............
Quality training (F).......................
Total prevention......................
Appraisal costs:
Materials inspection (F)...............
Product acceptance (V)...............
Field inspection (V)......................
Total appraisal........................
Internal failure costs:
Scrap (V)........................................
Retesting (V).................................
Rework (V)....................................
Downtime (V)................................
Total internal failure...............
External failure costs:
Warranty (V)..................................
Allowances (V)..............................
Complaint adjustment (F)............
Total external failure...............
Total quality costs.............................
76
January
February
$ 2,000
500
1,000
$ 3,500
$ 2,500
13,000
12,000
$ 27,500
2,500
15,000
14,000
$ 31,500
$ 10,000
6,000
9,000
5,000
$ 30,000
$ 12,000
7,200
10,800
6,000
$ 36,000
$ 15,000
7,500
2,500
$ 25,000
$ 86,000
$ 18,000
9,000
2,500
$ 29,500
$100,500
2,000
500
1,000
3,500
1413 Concluded
2.
Actual Costs
Prevention costs:
Quality planning (F)..........
New product review (F)....
Quality training (F)............
Total prevention...........
Appraisal costs:
Materials inspection (F)....
Product acceptance (V)....
Field inspection (V)...........
Total appraisal.............
Internal failure costs:
Scrap (V).............................
Retesting (V)......................
Rework (V)..........................
Downtime (V).....................
Total internal failure.....
External failure costs:
Warranty (V).......................
Allowances (V)...................
Complaint adjustment (F).
Total external failure....
Total quality costs..................
Bud. Costs*
Variance
$ 2,500
700
1,000
$ 4,200
$ 2,000
500
1,000
$ 3,500
$ 500 U
200 U
0
$ 700 U
$2,500
14,000
14,000
$ 30,500
$ 2,500
14,300
13,200
$ 30,000
$ 12,500
7,000
11,000
5,500
$ 36,000
$ 11,000
6,600
9,900
5,500
$ 33,000
$1,500U
400 U
1,100 U
0
$3,000 U
$ 17,500
8,500
2,500
$ 28,500
$ 99,200
$ 16,500
8,250
2,500
$ 27,250
$ 93,750
$1,000
250
0
$1,250
$5,450
0
300 F
800 U
$ 500 U
U
U
U
U
77
1414
1.
2009
Appraisal costs:
Prevention costs:
Internal failure costs:
External failure costs:
$360,000/$2,048,000 = 17.6%
$8,000/$2,048,000 = 0.4%
$1,000,000/$2,048,000 = 48.8%
$680,000/$2,048,000 = 33.2%
Appraisal
17.6%
External
Failure
Prevention
0.4%
33.2%
48.8%
Internal Failure
78
1414 Continued
2010
Appraisal costs:
$328,000/$2,048,000 = 16.0%
Prevention costs:
$160,000/$2,048,000 = 7.8%
Internal failure costs: $820,000/$2,048,000 = 40.0%
External failure costs: $740,000/$2,048,000 = 36.1%
(Total adds to 99.9% due to rounding error.)
The pie chart for 2010 is as follows:
Quality Costs
Appraisal
16.0%
External Failure
36.1%
7.8%
Prevention
40.0%
Internal Failure
Yes. More effort is clearly needed for prevention and appraisal activities. The
movement is in that direction, and total failure costs have declined.
79
1414 Concluded
2.
Major Company
Performance Report: Quality Costs
One-Year Trend
For the Year Ended December 31, 2010
Actual Costs
2010
Prevention costs:
Quality circles.................
Design reviews...............
Improvement projects....
Total prevention........
Appraisal costs:
Packaging inspection....
Product acceptance.......
Total appraisal...........
Internal failure costs:
Scrap................................
Rework.............................
Yield losses.....................
Retesting.........................
Total internal failure..
External failure costs:
Returned materials.........
Allowances......................
Warranty..........................
Total external failure.
Total quality costs...............
Actual Costs*
2009
40,000
20,000
100,000
$ 160,000
$ 300,000
28,000
$ 328,000
$ 400,000
50,000
$ 450,000
$ 100,000 F
22,000 F
$ 122,000 F
$ 240,000
320,000
100,000
160,000
$ 820,000
$ 350,000
450,000
200,000
250,000
$ 1,250,000
$ 110,000
130,000
100,000
90,000
$ 430,000
F
F
F
F
F
$ 160,000
140,000
440,000
$ 740,000
$ 2,048,000
$ 200,000
150,000
500,000
$ 850,000
$ 2,558,000
$ 40,000
10,000
60,000
$ 110,000
$ 510,000
F
F
F
F
F
4,000
2,000
2,000
8,000
Variance
$ 36,000
18,000
98,000
$ 152,000
U
U
U
U
*To compare 2010 costs with 2009 costs, the costs for 2009 must be adjusted
to a sales level of $10,000,000. Thus, all variable costs will change from the
2009 levels. For example, the adjusted product inspection cost is
($320,000/$8,000,000) $10,000,000 = $400,000.
Profits increased by $510,000.
3.
80
1415
1.
Prevention
1.00%
4.17
5.00
6.67
10.00
2006........
2007........
2008........
2009........
2010........
Appraisal
2.00%
2.50
4.29
2.50
1.00
Internal
16.00%
10.00
5.00
4.17
2.40
External
12.00%
8.33
3.57
3.33
1.60
2.
Trend in Quality Costs
35
Percentage of Sales
30
25
20
15
10
5
0
2006
2007
2008
Year
81
2009
2010
Total
31.00%
25.00
17.86
16.67
15.00
1415 Concluded
Trend by Category
Percentage of Sales
20
15
10
0
2006
2007
2008
2009
2010
Year
Prevention
Appraisal
Internal Failure
External Failure
Yes, quality costs overall have dropped from 31% of sales to 15% of sales, a
significant improvement. Real evidence for quality improvement stems from
the fact that internal failure costs have gone from 16% to 2.4%, external
failure costs from 12% to 1.6%, and appraisal costs from 2% to 1%. This
reduction of failure costs has been achieved by putting more resources into
prevention (from 1% to 10%).
3.
Prevention
$6,000
5,000
Appraisal
$12,000
10,000
Internal
$96,000
80,000
82
External
$72,000
60,000
Total
$186,000
155,000
1416
1.
Iona Company
Interim Performance Report: Quality Costs
For the Year Ended December 31, 2010
Prevention costs:
Fixed:
Quality planning.....
Quality training.......
Special project........
Quality reporting....
Total prevention................
Appraisal costs:
Variable:
Proofreading...........
Other inspection.....
Total appraisal...................
Failure costs:
Variable:
Correction of typos
Rework.....................
Plate revisions........
Press downtime......
Waste.......................
Total failure........................
Total quality costs.............
Actual Costs
Budgeted Costs
Variance
$ 150,000
20,000
100,000
12,000
$ 282,000
$ 150,000
20,000
80,000
10,000
$ 260,000
0
0
20,000 U
2,000 U
$22,000 U
$ 520,000
60,000
$ 580,000
$ 500,000
50,000
$ 550,000
$20,000 U
10,000 U
$30,000 U
$ 165,000
76,000
58,000
102,000
136,000
$ 537,000
$ 1,399,000
$ 150,000
75,000
55,000
100,000
130,000
$ 510,000
$ 1,320,000
$15,000
1,000
3,000
2,000
6,000
$27,000
$79,000
U
U
U
U
U
U
U
The firm failed across the board to meet its budgeted goals for the year. All
categories and each item were equal to or greater than the budgeted
amounts.
83
1416 Continued
2.
Iona Company
Performance Report: Quality Costs
One-Year Trend
For the Year Ended December 31, 2010
Prevention costs:
Fixed:
Quality planning.....
Quality training.......
Special project........
Quality reporting....
Total prevention................
Appraisal costs:
Variable:
Proofreading...........
Other inspection.....
Total appraisal...................
Failure costs:
Variable:
Correction of typos
Rework.....................
Plate revisions........
Press downtime......
Waste.......................
Total failure........................
Total quality costs.............
Actual Costs
2010
Actual Costs
2009
Variance
$ 150,000
20,000
100,000
12,000
$ 282,000
$ 140,000
20,000
120,000
12,000
$ 292,000
$ 10,000 U
0
20,000 F
0
$ 10,000 F
$ 520,000
60,000
$ 580,000
$ 580,000
80,000
$ 660,000
$ 60,000 F
20,000 F
$ 80,000 F
$ 165,000
76,000
58,000
102,000
136,000
$ 537,000
$1,399,000
$ 200,000
131,000
83,000
123,000
191,000
$ 728,000
$1,680,000
$ 35,000
55,000
25,000
21,000
55,000
$ 191,000
$ 281,000
F
F
F
F
F
F
F
84
1416 Continued
3.
Trend in Total Quality Costs
0.25
Percentage of Sales
0.20
0.20
0.18
0.165
0.15
0.14
0.10
0.11
0.05
0.00
2006
2007
2008
2009
Year
85
2010
1416 Continued
4.
Multiperiod Trend by Category
10
Percentage of Sales
0
2006
2007
2008
2009
2010
Year
Prevention
Appraisal
Internal Failure
External Failure
86
1416 Concluded
5.
Iona Company
Long-Range Performance Report
For the Year Ended December 31, 2010
Actual Costs
2010a
Prevention costs:
Fixed:
Quality planning........
Quality training..........
Special project..........
Quality reporting.......
Total prevention...................
Appraisal costs:
Variable:
Proofreading..............
Other inspection.......
Total appraisal......................
Failure costs:
Variable:
Correction of typos...
Rework.......................
Plate revisions...........
Press downtime........
Waste..........................
Total failure...........................
Total quality costs...............
a
Long-Range
Target Costsb
Variance
$ 150,000
20,000
100,000
12,000
$ 282,000
0
112,500
0
26,250
$ 138,750
$ 150,000
92,500
100,000
14,250
$ 143,250
$ 650,000
75,000
$ 725,000
$ 187,500
48,750
$ 236,250
$ 462,500 U
26,250 U
$ 488,750 U
$ 206,250
95,000
72,500
127,500
170,000
$ 671,250
$ 1,678,250
$ 206,250
95,000
72,500
127,500
170,000
$ 671,250
$ 1,303,250
0
0
0
0
0
$
0
$ 375,000
U
F
U
F
U
U
U
U
U
U
U
U
Except for prevention costs, which are fixed, actual costs of 2010 are
adjusted to a sales level of $15 million by multiplying the actual costs at $12
million by 15/12. This report is prepared at the end of 2010.
87
1417
1.
Prevention..................
Appraisal....................
Internal failure...........
External failure..........
Total......................
Diapers
0.9%
0.8
1.8
1.5
5.0%
Napkins
1.00%
1.17
1.08
0.75
4.00%
Paper
Towels
1.63%
1.63
1.63
1.63
6.52%
Total
1.08%
1.08
1.55
1.30
5.01%
The company has achieved its goal as no more than 5% of sales was spent
on quality (in total). Looking at individual products, the best outcome
(napkins) seems to be where appraisal and prevention costs exceed failure
costs. If this distribution is better, the total suggests that more should be
spent on prevention and appraisal. Opportunities to do so are present in the
diaper and paper towel lines.
2.
Prevention..................
Appraisal....................
Internal failure...........
External failure..........
Total......................
Diapers
1.8%
1.6
3.6
3.0
10.0%
Napkins
2.00%
2.33
2.17
1.50
8.00%
Paper
Towels
3.25%
3.25
3.25
3.25
13.00%
Total
2.15%
2.15
3.10
2.60
10.00%
For this scenario, the goal of 5% is far from being reached. If the idea of
balancing costs by category is true, then further reductions can be achieved
by shifting more resources into prevention and appraisal activities. Of the
three lines, the diaper line is particularly one where more resources should
be spent on prevention and appraisal activities. Shifting more resources into
these two categories has the potential to reduce the percentage for each line
to 5% or below.
Shifting more resources into prevention for paper towels and napkins would
not create balanced categories. It appears difficult to achieve the overall 5%
goal by balancing category costs. The preceding results suggest that the
even distribution suggestion of the divisional manager may not be the
optimal combination. Perhaps even more emphasis should be placed on
control costs.
88
1417 Concluded
3.
Prevention..................
Appraisal....................
Internal failure...........
External failure..........
Total......................
Diapers
1.80%
1.60
3.60
3.00
10.00%
Napkins
3.33%
3.89
3.61
2.50
13.33%
Paper
Towels
2.03%
2.03
2.03
2.03
8.12%
Total
2.15%
2.15
3.10
2.60
10.00%
Len should know that the bonuses are intended for those who legitimately
achieve the budgeted quality goals. The three actions taken by Len were
manipulative in naturetheir objective was simply to massage the performance statistic so that he could receive his bonus. Since Lens bonus is
achieved
simultaneously with that of his employees, there is some question whether he
really had their interest in mind or simply his own. The behavior exhibited by
Len is not ethical. The heart of ethical behavior is sacrificing ones selfinterest for the well-being of others. By engaging in manipulative behavior,
Len is damaging the reputation of the company and providing poor services
and products to customers. Len should have stressed the importance of
achieving the quality goals by continuing to strive for the current years goal
by improving quality. If the goal is not achieved this year, then the lack of
financial reward should be an additional incentive for better performance for
the coming year.
2.
First and foremost, the company should attempt to hire individuals with
integrity. Second, the company should make sure that the performance and
reward system is fair and acceptable to managers and employees. Perhaps
the company could provide a percentage of the savings from quality
improvements rather than making it an all or nothing bonus, based on
achieving some predetermined target. Finally, the company should have in
place a good monitoring system to discourage the type of behavior Len is
exhibiting, e.g., a good internal audit program.
89
1418 Concluded
3.
Len has violated the ethical code; he has a responsibility to refrain from
engaging in any conduct that would prejudice carrying out duties ethically
(III-2) and to abstain from engaging in or supporting any activity that might
discredit the profession (III-3).
90