You are the operations manager for a small kayak and canoe manufacturer (Valley Kayaks) located on the Pacific Northwest (Oregon). Lately your company has experi- enced product quality problems. Simply put, the kayaks that you produce occasionally have defects and require rework. Consequently, you have decided to assess the impact of introducing a total quality management (TQM) program. After discussing the potential effects with representatives from marketing, finance, accounting, and quality, you arrive at a set of estimates (contained in the following table). Top management has told you that they will accept any proposal that you come up with PROVIDED that it improves the return on assets measure by at least 15 percent. Would you go forward with this proposal to improve quality?
|
Category
|
Current Values
|
Estimated Impact of TQM
|
|
Sales
|
$2,000,000
|
5% 1 (improvement)
|
|
Cost of goods sold
|
$1,500,000
|
0%
|
|
Variable expenses
|
$ 300,000
|
8.25% 2 (reduction)
|
|
Fixed expenses
|
$ 100,000
|
0%
|
|
Inventory
|
$ 300,000
|
25% 2
|
|
Accounts receivable
|
$ 100,000
|
0%
|
|
Other current assets
|
$ 500,000
|
0%
|
|
Fixed assets
|
$ 400,000
|
0%
|