White Financial Services Corporation Is Engaged in Mortgage Origination and Investment

question 81

Essay

White Financial Services Corporation is engaged in mortgage origination and investment servicing activities with annual revenues of more than $90 million. Roberta White, CEO, recently has discovered that errors are costing the company over $800,000 per year. Jeremy Aiken, Vice President of Sales, dismisses the significance of the errors. Since the cost of errors is less than 1.0% of revenues, he believes the company should ignore the errors and concentrate instead on generating additional revenues. The consulting firm that made the discovery proposed to establish operating procedures for White that would build quality checks into operations. The interviewing, writing, and training activities associated with this project are expected to cost $450,000. Once the procedure is in place, the consultant believes, all errors will be eliminated. Jeremy argues that no system can be error-free and that the procedure is most likely to eliminate 80 percent of the errors. James White, Vice President of Customer Services, suggests that the company can hire 10 additional workers at an average salary of $30,000 (including fringe benefits) to double-check the work of people in sensitive areas.
Required:
What do you think White Financial Services Company should do? Support your answer with a logical analysis of the three alternatives (hire the consulting firm, hire additional workers, or do nothing about the errors and concentrate on additional revenues).

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Definitions:

Withdrawal

The act of removing funds from an account, or the act of taking out resources or assets from a business by an owner for personal use.

Capital

The wealth, either financial or physical, that is used by a business to produce goods or services.

Income Summary

An account in which the revenues and expenses are temporarily recorded to calculate the net income or loss for a period, before transferring to the capital account.

Capital

Refers to the financial assets or resources that individuals or businesses have available to invest or spend on building and growing their operations.