Tench Cars （Tench) is large national car manufacturing business. It is based in Essland, a

Tench Cars (Tench) is large national car manufacturing business. It is based in Essland, a country that has recently turned from state communism to democratic capitalism. The car industry had been heavily supported and controlled by the bureaucracy of the old regime. The government had stipulated production and employment targets for the business but had ignored profit as a performance measure. Tench is now run by a new generation of capitalist business people intent on rejuvenating the company’s fortunes.

The company has a strong position within Essland, which has a population of 200 million and forms the majority of Tench’s market. However, the company has also traditionally achieved a good market share in six neighbouring countries due to historic links and shared culture between them and Essland. All of these markets are experiencing growing car ownership as political and market reforms lead to greater wealth in a large proportion of the population. Additionally, the new government in Essland is deregulating markets and opening the country to imports of foreign vehicles.

Tench’s management recognises that it needs to make fundamental changes to its production approach in order to combat increased competition from foreign manufacturers. Tench’s cars are now being seen as ugly, pollutive and with poor safety features in comparison to the foreign competition. Management plans to address this by improving the quality of its cars through the use of quality management techniques. It plans to improve financial performance through the use of Kaizen costing and just-in-time purchasing and production. Tench’s existing performance reporting system uses standard costing and budgetary variance analysis in order to monitor and control production activities.

The Chief Financial Officer (CFO) of Tench has commented that he is confused by the terminology associated with quality management and needs a clearer understanding of the different costs associated with quality management. The CFO also wants to know the impact of including quality costs and using the Kaizen costing approach on the traditional standard costing approach at Tench.

Required:

Write to the CFO to:

(a) Discuss the impact of collection and use of quality costs on the current costing systems at Tench. (6 marks)

(b) Discuss and evaluate the impact of the Kaizen costing approach on the costing systems and employee management at Tench. (8 marks)

(c) Briefly evaluate the effect of moving to just-in-time purchasing and production, noting the impact on performance measures at Tench. (6 marks)