Julie Hilger Started New Treads to Combine Fashion and Sustainability

question 70

Essay

Julie Hilger started New Treads to combine fashion and sustainability. The original production of sandals made from recycled plastic has expanded to a complete line of casual footwear. Current sales total over $2 million. Julie hired the firm's first controller early this year, and has asked him to detail suggestions for ways to increase profits. Adrian Warring, the new controller, has compiled a list of recommended changes that focus on quality improvements. New Treads customers expect high quality at a low price, a "value" product. So the company must simultaneously watch costs and quality. After receiving his list of suggestions, Julie calls Adrian to her office and says, "I don't see how improving quality can increase productivity. In fact, it seems to me that efforts to improve quality will slow down production and decrease productivity."
Required:
Using specific examples, help Adrian explain to Julie why efforts to improve quality can also boost productivity. How does productivity play a role in the firm's strategy and competitive environment?

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Definitions:

Conversion Costs

The sum of direct labor and manufacturing overhead costs, representing the costs incurred to convert raw materials into finished products.

First-In, First-Out

A rephrased definition: An accounting method used to value inventory and calculate cost of goods sold, assuming the earliest goods purchased are the first to be sold.

Conversion Costs

Conversion costs are the costs required to convert raw materials into finished products, including labor and overhead.

Factory Overhead

Expenses related to the operation of a manufacturing plant that are not directly tied to a specific product, including utilities, depreciation, and facility maintenance.