Tim Ireland, controller of Roberts Electronics Division, was having lunch with Jimmy Jones, chief design engineer. Tim and Jimmy were good friends, having belonged to the same fraternity during their college days. The luncheon, however, was more business than pleasure.

Jimmy: “Well, Tim, you indicated this morning that you have something important to tell me. I hope this isn’t too serious. I don’t want my weekend ruined.”

Tim: “Well, the matter is important. You know that at the beginning of this year, 1 was given the charge to estimate post-purchase costs for new products. This is not an easy task.”

jimmy: “Yeah. I know. That’s why I had our department supply you engineering specs on the new products—stuff like expected component life.”

Tim: “This new product you’ve been developing has a problem. According to your reports, there are two components which will wear out within about 14 months. According to your test runs, the product starts producing subpar performance during the 13th month.”

jimmy: “Long enough to get us past the 12 month warranty. So why worry? There are no warranty costs for us to deal with.”

Tim: “Yes—but the customer then must incur substantial repair costs. And the product will have to be repaired once again before its useful life is ended. The estimated repair costs, when added to the normal life cycle costs, puts the whole-life cost above the target cost. According to the new guidelines, we are going to have to scrap this new product—at least if its current design is used. Perhaps you can find a new design that avoids the use of these two components—or find ways that they won’t be so stressed so that they last much longer.”

Jimmy: “Listen, Tim. I don’t have the time or the budget to redesign this product. I have to come under budget, and I have to meet the targeted production date or I’ll have the divisional manager down my throat. Besides, you know that I’m up for the engineering management position at headquarters. If this project goes well, it’ll give me what I need to edge out Thompson Division’s chief engineer. If I do the redesign, my opportunity for the job is gone. Help me out on this. You know how much this opportunity means to me.”

Tim: “I don’t know what I can do. I have to file the whole-life cost report and I’m required to supply supporting documentation from marketing and engineering.”

Jimmy: “Well, that’s easy to solve. Linda, the engineer who ran the tests on this product owes me a favor. I’ll get her to redo the tests so that the data produce a 24 month reliability period for the components. That should cut your estimated repair costs in half. Would that be enough to meet the targeted whole-life costs?”

Tim: “Yes, but…”

Jimmy: “Hey, don’t worry. If I tell Linda that I’ll push her for chief divisional engineer, she’ll cooperate. No sweat. This is a one time thing. How about it? Are you a player?”

REQUIRED:

1. Assume you are Tim. What pressures does he have to comply with Jimmy’s request? Do you think he should comply? Would you, if you were Tim? If not, how would you handle the situation?

2. Assume that Tim cooperates with Jimmy and covers up the design deficiency. What standards of ethical conduct for management accountants were violated? (See the IMA code described in Chapter 1).

3. Suppose that Tim refuses to cooperate. Jimmy then gets Linda to rerun the tests anyway, with the new, more optimistic results. He then approaches Tim with the tests and indicates that he is sending a copy of the latest results to the divisional manager, Jimmy then indicates that he will challenge any redesign recommendations that Tim recommends. What should Tim do?

Answer rating: 100% (QA)

1 Tim is under pressure to comply with Jimmys request for several reasons First Tim and Jimmy are fr... View the full answer