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| Question 1E-ES01 FulRange Inc. produces complex chips for personal electronic products such as music recording devices. The chips are sold primarily to major manufacturers,and any production overruns are sold to small manufacturers at a substantial discount. The small manufacturer market segment appears very profitable because the basic operating budget assigns all fixed expenses to production for the major manufacturers, the only predictable market. A common product defect that occurs in production is a “drift” that is caused by failure to maintain precise heat levels during the production process. Production managers maintain that rejects from the 100% testing program can be reworked to acceptable levels. However, in a recent analysis of customer complaints, George Wilson, the cost accountant, and the quality control engineer have ascertained that normal rework does not bring the chips up to standard. Sampling shows that about one-half of the reworked chips will fail after extended use. The incidence of failure in the reworked chips is projected to be about 10% over one to five years’ operation. Unfortunately, there is no way to determine which reworked chips will fail because testing will not detect this problem. The rework process could be changed to correct the problem, but the cost-benefit analysis for the suggested change in the rework process indicates that it is not feasible. FulRange’s marketing analyst has indicated that this problem will have a significant impact on the company’s reputation and customer satisfaction if the problem is not corrected. Consequently, the Board of Directors would interpret this problem as having serious negative implications on the company’s profitability. Wilson has included the chip failure and rework problem in his report that has been prepared for the upcoming quarterly meeting of the Board of Directors. Due to the potential adverse economic impact, Wilson has followed a long-standing practice of highlighting this information. After reviewing the reports to be presented, the plant manager and his staff were upset and indicated to the controller that he should control his people better. “We can’t upset the Board with this kind of material. Tell Wilson to tone that down.” The controller called Wilson into his office and said, “George, you’ll have to bury this one. The probable failure of reworks can be referred to briefly in the oral presentation, but it should not be mentioned or highlighted in the advance material mailed to the Board.” Wilson feels strongly that the Board will be misinformed on a potentially serious loss of income if he follows the controller’s orders. Wilson discussed the problem with the quality control engineer who simply remarked, “That’s your problem, George.” Questions A. Discuss the ethical considerations that George Wilson should recognize in this situation by referring to the specific standards the IMA Statement of Ethical Professional Practice. B. What should George Wilson do in this situation? Explain your answer. |