R. B. Dillman Company manufactures a high-tech component used in Bluetooth speakers that passes through two production processing departments, Molding and Assembly. Department managers are partially compensated on the basis of units of product completed and transferred out relative to units of product put into production. This was intended as encouragement to be efficient and to minimize waste.

Jan Wooten is the department head in the Molding Department, and Tony Ferneti is her quality control inspector. During the month of June, Jan hired three new employees who were not yet technically skilled. As a result, many of the units produced in June had minor molding defects. In order to maintain the department’s normal high rate of completion, Jan told Tony to pass through inspection and on to the Assembly Department all units that had defects nondetectable to the human eye. “Company and industry tolerances on this product are too high anyway,” says Jan. “Less than 2% of the units we produce are subjected in the market to the stress tolerance we’ve designed into them. The odds of those 2% being any of this month’s units are even less. Anyway, we’re saving the company money.”

Instructions

Who are the potential stakeholders involved in this situation?

What alternatives does Tony have in this situation? What might the company do to prevent this situation from occurring?

Post by classmate 1

1. Who are the potential stakeholders involved in this situation?

 In this scenario the stakeholders include Jan, Tony, other employees, consumers and suppliers of the company. 

1. What alternatives does Tony have in this situation? What might the company do to prevent this situation from occurring?

 In this situation Tony has to come up with an alternative solution because just pushing through products that he knows are not good is a morally not right. He either has to ask for the pieces to be remade or go straight to management. If Tony decides to go straight to management, then he is going to have to throw Jan immediately under the bus. If he just gets the associates to remake the products he can cover for Jan and also make himself look good. Management will see the products being rerun and ask why and he can take credit for catching the mistake. This will make him look good and also maybe cover for Jan in the process, that she was just going to push the products through. When companies create bonuses like this where it is based on production numbers employees may compromise the quality to create better quantity. This is not a question of Jan’s bias it is an unconscious bias being put on Jan by her bonus parameters (Woods, 2021). This scenario is something all companies should evaluate. It is okay to have incentive-based bonuses, but parameters need to be over these bonuses to set boundaries, making sure that products are not lower quality for greater bonuses. 

References

Woods, M. (2021, March 11). Compensation or compromise? the risks of compliance bonuses. Compliance Week. https://www.complianceweek.com/opinion/compensation-or-compromise-the-risks-of-compliance-bonuses/29898.article

Post by classmate 2

1. Who are the potential stakeholders involved in this situation?

The stakeholders in this situation are the employees, consumers of the product, Jan Wooten, Tony Ferneti, shareholders, creditors, suppliers, and department managers. 

1. What alternatives does Tony have in this situation? What might the company do to prevent this situation from occurring?

This situation poses an ethical dilemma for Tony if he does not do what his manager says by passing the products through production and potentially putting consumers at risk. In this situation, Tony has three options he can either pass the units through production like he was asked, bring up the issue with management, or ask to have the associates remake the defective pieces. In order to prevent this situation from occurring again, the company should reevaluate how department managers are compensated. According to the scenario, the current structure compensates managers based on the number of units completed and transferred out in relation to how many units were put into production. Since Jan knows that part of her compensation comes from how many units were completed and put through production, this weighted average method can lead to unethical business decisions. When a company uses the weighted average method in determining costs, completion percentages can be individualized or subjective. An unethical manager like Jan could use incorrect completion percentages to determine equivalent units in order to get fully compensated for her department’s completed production units (Kimmel, et al., 2022, p. 16-11). In this scenario, the company should reevaluate how managers are compensated so that they do not feel the need to pass defective items on to the next department.   

References

Kimmel, P.D., Weygandt, J.J., Mitchell, J.E. (2022) Accounting: Tools for decision making. (8th ed.). Wiley & Sons