Deck 17: The Management and Control of Quality

Question 1

Typically, as prevention and appraisal costs increase, other costs of quality:

A)Are not affected.
B)Change, but the direction cannot be predicted.
C)Increase proportionately.
D)Decrease.
E)Decrease proportionally.

Answer 1

D

Question 2

ISO 14000:

A)Provides a set of quality standards that relate to environmental management.
B)Is required under current International Financial Reporting Standards (IFRS).
C)Is a requirement for receipt of the Baldrige Quality Award in the U.S.
D)Provides general standards for quality assurance by companies and organizations.
E)Deals with quality-control principles as applied to government and not-for-profit organizations.

Answer 2

A

Question 3

The quality cost of prevention:

A)Includes the cost of detecting poor-quality outputs.
B)Refers only to zero-defect programs.
C)Is considered an "upstream" cost.
D)Is a component of the cost of non-conformance.
E)Is usually higher than other costs of quality.

Answer 3

C

Question 4

A common characteristic among control charts, histograms, Pareto diagrams, and cause-and-effect diagrams is that they are:

A)Based on relevant cost and relevant revenue data.
B)Based on the same scale.
C)Visual representations of quality-related problems.
D)Statistically-based.
E)All useful tools for preventing quality problems from occurring.

Question 5

The set of international quality-related standards, adopted in 1987 and revised in both 1994 and in 2000, is referred to as:

A)ISO 14000.
B)International Financial Reporting Standard No.14000.
C)International Financial Reporting Standard No.9000.
D)ISO 9000.
E)SEC Release 20-F.

Question 6

All of the following approaches can be used to set quality-related performance expectations except:

A)Taguchi quality loss function (QLF) analysis.
B)Six sigma.
C)Goalpost conformance.
D)Absolute conformance.
E)Ideal Performance.

Question 7

Management accountants can help support the quality initiatives of management by supplying decision makers with relevant financial information regarding these initiatives.Which of the following statements is true regarding costs that are relevant for decision making within this context?

A)Relevant costs are variable costs.
B)Relevant costs are fixed costs.
C)Relevant costs include out-of-pocket but not opportunity costs because the latter are not recorded by accounting systems.
D)Relevant costs are future costs that differ across the decision alternatives.
E)Relevant costs would not include estimated losses due to reduced market share.

Question 8

Conformance to a quality specification expressed as a specified range around a target is:

A)End-zone conformance.
B)Target conformance.
C)Goalpost conformance.
D)Absolute quality conformance.
E)Zero-defect conformance.

Question 9

The term performance quality refers to:

A)The difference between customer expectations (for attributes, services, functionality, etc.) and product design.
B)The gap between product design specifications and actual performance of the product.
C)Customer satisfaction with the total experience of a product or service.
D)The gap between actual performance of a product and customer expectations.
E)Costs related to meeting customer demands and quality-related expectations.

Question 10

In a Cost- of- Quality reporting framework, costs incurred to keep quality defects from occurring are classified as:

A)Customer-failure costs.
B)Appraisal costs.
C)Internal failure costs.
D)Prevention costs.
E)Detection costs.

Question 11

The Taguchi Quality Loss Function (QLF) demonstrates that as the quality measure of a product declines, the loss due to quality defects:

A)Increases as a quadratic function.
B)Increases as a linear function.
C)Increases as an exponential function.
D)Decreases as a quadratic function.
E)Increases as a step function.

Question 12

The term Six Sigma refers to:

A)The control limits established in a Pareto-analysis chart.
B)A quality-performance standard that requires all products and services to meet the target value exactly, with no variation.
C)A business process-improvement approach that seeks to find and eliminate causes of defects and errors.
D)The quality expectation embodied in a robust-quality performance standard.
E)The quality requirement specified for ISO 9000 certification.

Question 13

Regardless of the differences in format, a common feature that should be present in any Cost-of-Quality (COQ) Report is that the report:

A)Promotes the management and control of quality-related costs.
B)Classifies costs by product line.
C)Classifies costs by cost center or profit center.
D)Classifies costs by behavior (e.g., fixed versus variable).
E)Classifies costs by the external value stream.

Question 14

A proper role for accounting in terms of managing and controlling quality is all of the following except:

A)Providing management with relevant financial information for decisions related to quality-oriented initiatives.
B)Providing management with relevant nonfinancial information for decisions related to quality-related initiatives.
C)Specifying quality-related goals and objectives for the organization.
D)Identifying operational constraints.
E)Participating in the development of Six Sigma quality-related goals.

Question 15

Which of the following statements regarding the meaning of "quality" is true?

A)Total quality can be decomposed into two broad components: features and performance.
B)"Features," as used in the discussion of quality, refers to actual functionality of a product.
C)Another name for product features is performance quality.
D)Cost-of-Quality (COQ) reporting is most helpful in managing design quality.
E)Quality of design is defined as the difference between design specifications and customer desires.

Question 16

Conformance to a quality standard that requires all products or services to meet exactly the target value with no variation allowed is:

A)Control-chart conformance.
B)Target conformance.
C)Goalpost conformance.
D)Absolute quality conformance.
E)Benchmark quality conformance.

Question 17

Which one of the following is not a category of the Cost of Quality (COQ) reporting model?

A)Value-stream cost.
B)External failure cost.
C)Internal failure cost.
D)Detection cost.
E)Prevention cost.

Question 18

Studies have shown that improvements in quality can lead to:

A)A higher total cost as additional costs are spent to improve quality.
B)Lower productivity because of the need to meet a higher quality standard.
C)Increases in throughput time.
D)Increases in productivity (e.g., lower manufacturing costs)
E)Increased warranty costs.

Question 19

Which of the following is not a characteristic of the general framework for managing and controlling quality depicted in Chapter 17?

A)Customer expectations.
B)Taguchi loss functions.
C)Six sigma quality expectations.
D)Diagnostic control system.
E)Standard cost variance analysis, based on flexible budgets.

Question 20

Which of the following is not an expected result of improved quality of operations?

A)Decreased inventory turnover.
B)Higher product/service selling prices.
C)Faster throughput time.
D)Lower total manufacturing cost.
E)Increased sales volume.

Question 21

In a Cost of Quality (COQ) report, test equipment maintenance costs would be classified as:

A)Prevention costs.
B)Retention costs.
C)Appraisal costs.
D)Internal failure costs.
E)External failure costs.

Question 22

In a Cost of Quality (COQ) reporting framework, scrap costs because of quality failure would be classified as:

A)Prevention costs.
B)Salvage costs.
C)Appraisal costs.
D)Internal failure costs.
E)External failure costs.

Question 23

In a Cost of Quality (COQ) report, sales returns and allowances due to quality deficiency would be classified as:

A)Prevention costs.
B)Salvage costs.
C)Appraisal costs.
D)Internal failure costs.
E)External failure costs.

Question 24

A graphical representation of the variation in a given set of data is a(n):

A)Control chart.
B)Pareto diagram.
C)Histogram.
D)Ishikawa diagram.
E)Cause-and-effect diagram.

Question 25

Inspection costs for reworked units would be classified, for Cost of Quality (COQ) reporting purposes, as:

A)Prevention costs.
B)Retention costs.
C)Appraisal costs.
D)Internal failure costs.
E)External failure costs.

Question 26

Cycle time efficiency is:

A)Defined as the ratio of time spent on value-added activities to the sum of time spent on value-added plus non-value-added activities.
B)Also referred to as process efficiency.
C)Defined as the ratio of throughput to resources used.
D)The ratio of throughput to the amount of product in backlog status.
E)Typically not part of a comprehensive framework for managing and controlling quality since it is a nonfinancial performance indicator.

Question 27

The "cost of conformance" in a Cost-of-Quality reporting system includes:

A)Prevention costs and appraisal costs.
B)Internal failure costs and external failure costs.
C)Prevention costs and internal failure costs.
D)Appraisal costs and internal failure costs.
E)Prevention costs and external failure costs.

Question 28

In a typical Cost of Quality (COQ) report, instructor fees for quality training would be classified as:

A)Prevention costs.
B)Retention costs.
C)Appraisal costs.
D)Internal failure costs.
E)External failure costs.

Question 29

Which of the following statements about nonfinancial indicators of quality is not true?

A)They can be useful predictors of future financial performance.
B)Generally speaking, they are more costly to generate than financial measures of quality.
C)They are timelier than financial data.
D)They are readily interpretable by operating personnel.
E)They help to identify precise quality-related problems.

Question 30

In a Cost of Quality (COQ) report, costs to acquire and install training equipment would be classified as:

A)Prevention costs.
B)Retention costs.
C)Appraisal costs.
D)Internal failure costs.
E)External failure costs.

Question 31

A graph that depicts successive observations of an operation taken at constant intervals is a(n):

A)Control chart.
B)Pareto diagram.
C)Histogram.
D)Ishikawa diagram.
E)Cause-and-effect diagram.

Question 32

In a Cost of Quality (COQ) framework, warranty costs are properly classified as:

A)Prevention costs.
B)Retention costs.
C)Appraisal costs.
D)Internal failure costs.
E)External failure costs.

Question 33

For Cost of Quality (COQ) reporting purposes, contribution margin of canceled sales orders due to quality deficiency would be classified as:

A)Prevention costs.
B)Appraisal costs.
C)Internal failure costs.
D)External failure costs.
E)A lost sale, not a quality cost.

Question 34

Costs incurred as a result of poor quality found through appraisal prior to delivery of the product to the customer are, in a Cost-of-Quality (COQ) reporting framework, considered:

A)External failure costs.
B)Appraisal costs.
C)Internal failure costs.
D)Prevention costs.
E)Conformity costs.

Question 35

In a Cost-of-Quality (COQ) reporting framework, costs incurred in conjunction with the measurement and analysis of data to ascertain conformity of products and services to specification are properly classified as:

A)External failure costs.
B)Appraisal costs.
C)Internal failure costs.
D)Prevention costs.
E)Value-added costs.

Question 36

In a Cost of Quality (COQ) framework, rework costs incurred before shipment of product are considered:

A)Prevention costs.
B)Retention costs.
C)Appraisal costs.
D)Internal failure costs.
E)External failure costs.

Question 37

Which of the following is not an external nonfinancial measure of quality?

A)Number of defective parts produced.
B)Number of defective units shipped to customers.
C)Number of customer complaints.
D)Delivery delays (e.g., difference between scheduled and actual delivery date).
E)Percentage of products that experience early or excessive failure.

Question 38

All of the following are examples of internal nonfinancial quality indicators except:

A)Number of customer complaints.
B)Process yield (i.e., ratio of good outputs to total output).
C)Productivity (i.e., ratio of acceptable output to resource inputs).
D)Plant safety record (e.g., days since last major accident).
E)Throughput.

Question 39

In a Cost-of-Quality (COQ) reporting framework, the "cost of nonconformance" includes:

A)Prevention costs and appraisal costs.
B)Internal failure costs and external failure costs.
C)Prevention costs and internal failure costs.
D)Appraisal costs, internal failure costs, and external failure costs.
E)Prevention costs and external failure costs.

Question 40

For Cost of Quality (COQ) reporting purposes, materials inspection costs would be classified as:

A)Prevention costs.
B)Retention costs.
C)Appraisal costs.
D)Internal failure costs.
E)External failure costs.

Question 41

How much are internal failure costs projected to change?

A)$20,000 decrease.
B)$45,000 decrease.
C)$80,000 decrease.
D)$160,000 decrease.
E)$320,000 decrease.

Question 42

Which of the following statements about product quality is not true?

A)In almost all cases detecting and fixing quality problems before delivering to customers are far less expensive than dealing with quality failures in the field after delivery has been made to the customers.
B)In general, designing quality into products is far less expensive than trying to detect quality problems during production.
C)Quality failure costs should include the possible opportunity cost of lost future sales.
D)The most expensive cost to the firm for a quality failure in the field is the cost of emergency service to fix the problem or to replace the product.
E)The cost of fixing quality problems after delivery to the customer is likely to exceed both the cost of designing quality into the product and the cost of detecting quality defects during production.

Question 43

A tool that can be used to identify potential causes of failures or defects is a:

A)Control chart.
B)Pareto diagram.
C)Fishbone (i.e., Ishikawa) diagram.
D)Run chart.
E)Six Sigma report.

Question 44

A graphical representation of frequency of occurrence of the factors contributing to an indicated quality problem, ordered from the most to the least frequent, is a(n):

A)Control chart.
B)Pareto diagram.
C)Histogram.
D)Ishikawa diagram.
E)Cause-and-effect diagram.

Question 45

What effect does the new equipment have on appraisal costs?

A)$10,000 increase.
B)$20,000 decrease.
C)$170,000 increase.
D)$220,000 increase.
E)No change.

Question 46

Within a Cost-of-Quality (COQ) system, product liability resulting from a legal action is classified as a(n):

A)Internal failure cost.
B)External failure cost.
C)Legal cost.
D)Administrative expense.
E)Manufacturing overhead cost.

Question 47

In a Cost-of-Quality (COQ) reporting framework, the cost of scrap, rework, and tooling changes are categorized as a(n):

A)External failure cost.
B)Internal failure cost.
C)Manufacturing overhead cost.
D)Avoidable cost.
E)Appraisal cost.

Question 48

Which of the following is a tool that indicates how frequently each type of quality defect occurs?

A)Control chart.
B)Pareto diagram.
C)Cause and effect diagram.
D)Fishbone diagrams.
E)Ishikawa diagram.

Question 49

A graphical method that organizes a chain of causes and effects to sort out root causes and identify relationships between causes or variables is a(n):

A)Control chart.
B)Pareto diagram.
C)Histogram.
D)Fish-bone (i.e., Ishikawa) diagram.
E)Brainstorm report.

Question 50

All of the following costs are generally included in a Cost-of-Quality (COQ) report except:

A)Warranty claims.
B)Forgone contribution margin on lost sales.
C)The cost of making sales calls.
D)Design re-engineering costs.
E)The cost of implementing a statistical process control (SPC) system.

Question 51

What is the change in total quality cost projected for 2013?

A)$400,000 decrease.
B)$290,000 decrease.
C)$550,000 decrease.
D)$560,000 decrease.
E)$580,000 decrease.

Question 52

How much do you expect total external failure costs to change?

A)$10,000 increase.
B)$200,000 decrease.
C)$320,000 decrease.
D)$400,000 decrease.
E)$800,000 decrease.

Question 53

A ______________ shows trends in a quality measure over time.

A)Pareto diagram
B)Fishbone (i.e., Ishikawa) diagram
C)Cost-of-Quality (COQ) report
D)Run chart
E)Taguchi Loss Function (TLF)

Question 54

Using a Taguchi loss function for this company, what is the amount of the estimated loss when the actual quality characteristic, x, is 0.505?

A)$0.3906.
B)$7.8125.
C)$19.53125.
D)$125.000.
E)$1,562.50.

Question 55

What is the amount of the estimated loss using a Taguchi loss function if the actual quality characteristic, x, is 0.510?

A)$7.8125.
B)$31.25.
C)$78.125.
D)$3,125.
E)$7,812.50.

Question 56

What is the current 2012 total Cost of Quality (COQ)?

A)$400,000.
B)$1,600,000.
C)$2,400,000.
D)$2,800,000.
E)$5,200,000.

Question 57

The $100,000 payment to the consulting firm for COQ reporting purposes is best classified as a(n):

A)Prevention cost.
B)Appraisal cost.
C)Internal failure cost.
D)External failure cost.
E)Administrative cost.

Question 58

The four categories of cost associated with a Cost-of-Quality (COQ) reporting system are:

A)External failure, internal failure, prevention, and carrying.
B)External failure, internal failure, prevention, and appraisal.
C)External failure, internal failure, training, and appraisal.
D)Warranty, product liability, training, and appraisal.
E)Warranty, product liability, prevention, and appraisal.

Question 59

Oslo Company's target quality characteristic, T, for one of its key components is set at 82.Using the Taguchi Loss Function the company has determined the cost coefficient, k, to be $6,000.What is the estimated loss, L(x), if the value of the quality characteristic, x, is 85?

A)$1,500.
B)$4,500.
C)$18,000.
D)$42,500.
E)$54,000.

Question 60

What is the cost coefficient, k, in the Taguchi loss function for this company?

A)$125.
B)$6,250.
C)$15,625.
D)$312,500.
E)$781,250.

Question 61

Over the last few months, Ithaca Precision Instruments (IPI) obtained the following measurements on a key quality characteristic of its product: $$\begin{array} { | c | c | } \hline \text { Observed Quality Characteristic } & \text { Probability } \\\hline 0.46 & 0.05 \\\hline 0.47 & 0.10 \\\hline 0.48 & 0.12 \\\hline 0.49 & 0.15 \\\hline 0.50 & 0.30 \\\hline 0.51 & 0.12 \\\hline 0.52 & 0.10 \\\hline 0.53 & 0.05 \\\hline 0.54 & 0.01 \\\hline\end{array}$$ The company's experience has been that a customer will reject a product that deviates from the target quality characteristic of 0.50 by more than 0.004. Each rejection costs the firm an estimated $5.00. Determine the expected total quality loss of the observed quality characteristic for IPI. Round final steps of calculation to 4 decimal places (e.g., $18.89568 becomes $18.8957).

A) $7.8125.
B) $31.2500.
C) $78.1250.
D) $108.1250.
E) $312.5000.

Question 62

Which of the following is not a nonfinancial quality metric?

A)Process yield (i.e., good output/total output).
B)Number of defective parts produced (e.g., parts-per-million, ppm).
C)Number of machine setups
D)Machine up-time (or, machine down-time).
E)Trend in dollar amount of inventory held.

Question 63

A quality circle:

A)Is a large group of employees from the same work area who meet regularly to identify and solve work-related problems and to implement and monitor solutions to these problems.
B)Does not implement and monitor solutions to the problems.
C)Is a small group of employees from the same work area who meet regularly to identify and solve work-related problems and to implement and monitor solutions to these problems.
D)Is a small group of employees from different work areas who meet regularly to identify and solve work-related problems and to implement and monitor solutions to these problems.
E)Does not meet regularly.

Question 64

Assume that based on the company's cost information, tolerance is set at 0.0009.What should the target specification ("target specs") for the product be?

A)0.025 +/- 0.0300
B)0.025 +/- 0.0090
C)0.500 +/- 0.0300
D)0.500 +/- 0.0009
E)0.500 +/- 0.00000081

Question 65

Which of the following is not a characteristic of lean manufacturing?

A)Increase in product flow (that is, throughput).
B)Increase in product quality.
C)Increase in inventory.
D)Establishment of long-term relationships with suppliers.
E)Continuous-improvement perspective.

Question 66

Which of the following is not a point of difference between lean manufacturing and traditional manufacturing processes?

A)Traditional systems focus on cost reduction, while lean emphasizes meeting customer demand with short lead times.
B)Traditional systems motivate reductions in inventory holdings, while lean focuses on reducing idle time.
C)Lean production systems are characterized by demand-pull, while traditional systems "push" production to meet forecasted demand.
D)Lean systems focus on reducing setup times (to maximize manufacturing flexibility), while traditional manufacturing focuses on a reduction in the number of setups (to reduce setup costs).

Question 67

One of the key elements of lean accounting is the use of the value stream income statement.Which of the following is not a characteristic of value stream income?

A)Reduction in the need for allocations of indirect costs.
B)Expansion of the scope of the cost object.
C)Decreased use of direct-cost tracing.
D)Focus on revealing financial benefits of lean manufacturing.
E)Income-effects for individual families of products are revealed.

Question 68

What is the amount of the estimated loss, L(x), using a Taguchi loss function, if the actual quality characteristic, x, is 0.41?

A)$25.
B)$100.
C)$10,000.
D)$4,000,000.
E)$4,100,000.

Question 69

Which of the following is not a characteristic of a lean accounting system?

A)Costs in the system are organized according to value streams.
B)The system includes both financial and nonfinancial performance indicators.
C)It is most appropriate for firms operating in dynamic and competitive environments.
D)The system incorporates the use of standard costs and standard cost variances.
E)The overall intent of the system is to more accurately reflect improvements associated with lean manufacturing.

Question 70

Within the context of managing and controlling quality, the term "tolerance" refers to all of the following except:

A)An approach to defining quality expectations for a process or output.
B)An acceptable range for a given quality characteristic, such as diameter or thickness.
C)An input to defining product specifications (i.e., "product specs").
D)1 minus the cost coefficient, k, in the Taguchi loss function.
E)A term used principally in conjunction with goalpost performance expectations.

Question 71

Value stream income statements, which are part of a lean accounting system, have all of the following characteristics except:

A)They report segment profits in the form of value streams.
B)They attempt to separate out the short-term effects of reductions in inventory.
C)They separate traceable from non-traceable costs on the income statement.
D)They calculate average costs for units in each value stream.
E)They eliminate the need to deal with indirect costs.

Question 72

What is the amount of the estimated loss, L(x), using a Taguchi loss function, when the actual quality characteristic, x, is 0.405?

A)$25.
B)$5,000.
C)$10,000.
D)$400,000.
E)$405,000.

Question 73

Given the company's cost coefficient, k, what should the tolerance be (approximately) before conducting additional testing and adjusting at the factory?

A)0.000009375.
B)0.0030615.
C)0.000625.
D)0.025.
E)0.25.

Question 74

What is the cost coefficient, k, for the Taguchi loss function associated with this situation?

A)$10.
B)$500.
C)$10,000.
D)$1,000,000.
E)$2,000,000.

Question 75

Which of the following is not a characteristic of a lean accounting system?

A)Calculated costs are used in setting product prices.
B)Reporting is done frequently (often weekly, or even daily).
C)Product aggregation-product costs are determined at the value-stream level.
D)Use of average costs for products in each value stream.
E)Includes, in the form of box score report, nonfinancial as well as financial performance results.

Question 76

For Hanson, what is the value of k, the cost coefficient in the Taguchi Loss Function?

A)$5.
B)$2,000.
C)$80,000.
D)$1,600,000.
E)$3,200,000.

Question 77

Heidelberg Manufacturing specifies the quality characteristic for one of its key components to be 154" ±4.The cost of failure is estimated to be $8,000 per unit.Using the Taguchi Loss Function the firm has estimated the loss, L(x), at the quality characteristic that the firm has experienced, x, to be $4,500.What is the estimated loss if the deviation from the value of the quality characteristic doubled?

A)$4,000.
B)$9,000.
C)$16,000.
D)$18,000.
E)$32,000.

Question 78

Lean manufacturing principles are derived in large part from the Toyota Production System (TPS).Which of the following is not associated with the TPS?

A)Use of batch processing.
B)Development of long-term relationships with key suppliers.
C)Emphasis on balanced, continuous-flow manufacturing.
D)Continuous improvement and elimination of waste in the system.
E)Use of flexible manufacturing systems (FMS).

Question 79

Which of the following is not one of the five principles of lean manufacturing?

A)Demand-push production.
B)Value stream accounting.
C)Demand-pull production.
D)Employee empowerment.
E)Perfection and continuous improvement.

Question 80

Quality costs for services include:

A)Prevention costs and appraisal costs only.
B)Prevention costs, appraisal costs and internal failure costs only.
C)Appraisal costs and internal failure costs only.
D)Prevention costs, appraisal costs, internal failure costs, and external failure costs.
E)External failure costs only.