Deck 10: Quality, inventory Management, and Time

Question 1

Conformance quality is the performance of a product or service relative to its design and product specifications.

Answer 1

True

Question 2

A significant component of costs of quality is the opportunity cost of the contribution margin and income forgone from lost sales,lost production,and lower prices that were a result of poor design and conformance quality.

Answer 2

True

Question 3

Prevention costs are costs incurred to prevent the production of products that do not conform to specifications.

Answer 3

True

Question 4

List and define the two basic aspects of quality.

Question 5

________ is a formal means to distinguish between random and nonrandom variations in an operations process.

A)Stockout cost
B)Shrinkage cost
C)Carrying cost
D)Static inventory method
E)Statistical quality control (SQC)

Question 6

A ________ is a chart that indicates how frequently each type of defect occurs,ordered from the most frequent to the least frequent.

A)chart
B)linear
C)quality
D)pareto diagram
E)lean production

Question 7

The managerial accountant at the Candle Factory reported $325,000,000 in revenues and the following external failure costs in 2012:
Cost of Quality Category

Required
Compute the external failure cost to percent of revenues of associated with this loss.

A)4.00%
B)4.10%
C)4.20%
D)4.30%
E)4.40%

Question 8

What are costs of qualities (COQ)?

Question 9

A ________ identifies potential causes of defects using a diagram that resembles the bone structure of a fish.

A)time driver
B)value chain
C)safety stock
D)pareto diagram
E)cause-and-effect diagram

Question 10

________ are costs incurred to detect which of the individual units of products do not conform to specifications

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

Question 11

The managerial accountant at Change Organization needs to determine the total indirect Research and Development (R&D)cost associated with a new machine.The manager revealed total revenues were $4,000,000;and reported that the only prevention cost to allocate were 20,000 hours assigned to R&D at $35 per hour.The manager's report indicated that the there were no direct costs associated with the machine because there were no resources assigned to the management of quality of the machines.
Required:
Compute the total cost and the percent of revenues associated with the Research and Development at Change Organization.

A)$500,000 total cost;15.5% of revenues
B)$600,000 total cost;16.5% of revenues
C)$700,000.total cost;17.5% of revenues
D)$800,000 total cost;18.5% of revenues
E)$900,000 total cost;19.5 % of revenues

Question 12

________ refers to how closely the characteristic of products or service meets the needs and wants of customers.

A)Design quality
B)Conformance quality
C)Internal failure costs
D)External failure costs
E)Environmental costs

Question 13

The American Society for Quality defines ________ as the total features and characteristics of a product or a service made or performed according to specifications to satisfy customers at the time of purchase and during use.

A)costs
B)margin
C)quality
D)integrity
E)appraisal

Question 14

ISO 9000,developed by the International Organization for the Standardization,is a set of five international standards for quality management adopted by more than 85 countries.

Question 15

The Lighthouse Factory manufactures lighthouses,and the managers sell them to the tourists in Rodanthe,North Carolina.A manager revealed that total revenues of lighthouses were $3,500,000.The only indirect appraisal costs associated with 15,000 hours of inspections in manufacturing were $20 per hour.The manager's report indicated that the there were no direct costs associated with the machine because there were no resources assigned to the management of quality of the machines.
Required:
Compute the total cost and the percent of revenues associated with the inspections at the Lighthouse Factory.

A)$275,000 total cost;5.62% of revenues.
B)$300,000 total cost;8.57% of revenues.
C)$350,000 total cost;9.64% of revenues.
D)$400,000 total cost;2.08% of revenues.
E)$450,000 total cost;2.50% of revenues.

Question 16

What is the most direct financial measure of quality?

Question 17

________ are costs incurred on defective products after they have been shipped to customers.

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

Question 18

Cause-and-effect diagrams are also called ________.

A)static charts
B)control charts
C)pareto diagrams
D)statistical charts
E)fishbone diagrams

Question 19

________ are costs incurred on defective products before they are shipped to customers.

A)Allocation Costs
B)Prevention costs
C)Appraisal costs
D)Internal failure costs
E)External failure costs

Question 20

Which of the following is not a nonfinancial measure of internal-business-process quality?

A)Percentage of defective products manufactured.
B)Percentage of reworked products.
C)Number of different types of defects using control charts.
D)Number of design and process changes made to improve design quality,or reduce costs of quality.
E)Earnings per share.

Question 21

Which of the following is not an advantage of nonfinancial measures of quality?

A)Often easy to quantify.
B)Often easy to understand.
C)Provides immediate short-run feedback on outcomes of quality improvement efforts.
D)Prohibits immediate short-run feedback as to whether quality-improvement efforts are succeeding.
E)Measures of customer satisfaction and employee satisfaction are useful indicators of long-term performance.

Question 22

Managers use computer programs to prepare pareto diagrams,and cause-and-effect diagrams with the goal to continue to reduce the mean defect rate,µ,and the standard deviation,σ.

Question 23

________ arise in preparing and issuing purchase orders,receiving and inspecting the items included in the orders,and matching invoices received,purchase orders,and delivery records to make payments.

A)Costs of quality
B)Stockout costs
C)Carrying costs
D)Purchasing costs
E)Ordering costs

Question 24

The ultimate goal of quality programs at companies such as Motorola,Honeywell,and General Electric is to achieve Six Sigma quality.

Question 25

How do managers evaluate each alternative versus the status quo?

Question 26

What are observations outside of the control limits? How are they ordered?

Question 27

Nonfinancial measures of quality are often easy to quantify and understand.

Question 28

What is a control chart? How do managers plot observations?

Question 29

Which of the following is not a quality training and quality improvement measure?

A)Experience and qualifications of design engineers.
B)Employee turnover.
C)Employee empowerment.
D)Employee training.
E)Percentage of reworked products.

Question 30

Higher customer satisfaction indicates that costs of quality will likely increase in the future.

Question 31

Which of the following is true about how quality improvements affect the cost of quality?

A)Quality improvements affect the cost of quality.
B)Some managers believe they should eliminate all failure costs and have zero defects.
C)In successful quality programs,companies decrease the cost of quality.
D)COQ reports provide less insight about quality improvements when manager compare trends over time.
E)COQ reports provide more insight about quality improvements when managers compare trends over time.

Question 32

Which of the following is not an advantage of COQ measures?

A)The measure focuses on managers' attention on how poor quality affects operating income.
B)Helps manager aggregate costs to evaluate tradeoffs among prevention costs.
C)Helps manager aggregate costs to evaluate tradeoffs among
D)Does not help manager to compare any costs and benefits of other quality programs.
E)Compares costs and benefits of different quality improvement programs.

Question 33

Relevant-cost and relevant-revenue analysis ignores allocated costs.

Question 34

Statistical procedures have been developed using the trend as well as the variation to evaluate whether a process is out of control.

Question 35

The manager at the Trailer Manufacturing plant has the option to continue to inspect,or redesign.Listed below are the estimated effects of quality improvement on costs of quality report obtained by the managerial accountant.

The manager must determine and compare the inspection option,or the option to redesign.
Required:
Compute and compare the total contribution margins of the inspection option and the redesign option.Should the manager choose the inspection option or the redesign option? Show all work.

Question 36

The ratio of the number of employees that indicate high satisfaction ratings to the number of employees surveyed is ________.

A)employee satisfaction
B)employee experience
C)employee training
D)employee turnover
E)employee empowerment

Question 37

How can managers create a quality culture in an organization?

Question 38

Total COQ helps managers aggregate costs to evaluate tradeoffs among prevention costs,appraisal costs,internal failure costs,and external failure costs.

Question 39

How do quality improvements affect the cost of quality?

Question 40

How do COQ measures and nonfinancial measures complement each other?

Question 41

If Coffee Company has a safety stock of 400 units and the average daily demand is 30 units,how many days can be covered if the shipment from the supplier is delayed by 12 days?

A)1,200 days
B)15 days
C)13.3 days
D)21.5 days
E)14 days

Question 42

What do managers do when they are uncertain about demand,lead time,or the quantity that suppliers can provide?

Question 43

Glasswall Company sells 300 windows per week.Purchase-order lead time is 2 weeks and the economic order quantity is 475 units.What is the reorder point?

A)175 units
B)475 units
C)600 units
D)775 units
E)1,200 units

Question 44

________ result from theft by outsiders,embezzlement by employees,misclassifications,and clerical errors.

A)Purchasing costs
B)Carrying costs
C)Stockout costs
D)Shrinkage costs
E)Costs of quality

Question 45

The larger the order quantity,the lower the annual relevant ordering costs,but the higher the annual relevant carrying costs.

Question 46

The EOQ model is solved using calculus,but the key is that relevant total costs are minimized when relevant ordering costs equal relevant carrying costs.

Question 47

What is the economic-order-quantity decision model?

Question 48

If Douglas Fir,Inc.has a safety stock of 135 units and the average weekly demand is 21 units,how many days can be covered if the shipment from the supplier is delayed?

A)6.4 days
B)21 days
C)45 days
D)52 days
E)17 days

Question 49

Mary's Bakery can predict with virtual certainty the demand for its products.Mary's sells 70 cupcakes per week.Purchase-order lead time is 4 weeks and the economic-order quantity is 95 cupcakes.What is the reorder point?

A)280 cupcakes
B)6,300 cupcakes
C)165 cupcakes
D)74 cupcakes
E)95 cupcakes

Question 50

How does a manager know to implement just-in-time purchasing?

Question 51

The following information applies to Pet Storehouse,which supplies dog houses to pet stores throughout the country.Pet Storehouse purchases the dog houses from a manufacturer which has a reputation for very high quality in its manufacturing operation.

What is the reorder point?

A)1,250.1 units
B)1,420.6 units
C)1,680.2 units
D)1,698.4 units
E)1,799.4 units

Question 52

Purchasing costs are the cost of goods acquired from suppliers,including incoming freight costs.

Question 53

________ are the cost of goods acquired from suppliers,including incoming freight costs.

A)Ordering costs
B)Purchasing costs
C)Carrying costs
D)Stockout costs
E)Costs of quality

Question 54

Winter Resort Solutions sells ski and snowboard equipment.The company also manufactures snowboards.Winter Resort Solutions orders 6,000 snowboards a year,115 per week,at $24.50 per board and it covers all shipping costs.The company earns 30% on its cash investments.The purchase-order lead time is 2.5 weeks.It sells 125 snowboards per week.The following data are available:

Compute the economic order quantity for Platinum Snow Company and the reorder point.

A)22,615 snowboards;502 snowboards
B)161 snowboards;313 snowboards
C)205 snowboards;112.5 snowboards
D)42,000 snowboards;450 snowboards
E)520 snowboards;112.5 snowboards

Question 55

Stockout costs arise when a company runs out of a particular item for which there is customer demand.

Question 56

How does information-gathering technology with barcoding increase the reliability and timeliness of inventory information?

Question 57

________ is the time between placing an order and its delivery.

A)Stockout
B)Shrinkage
C)Carrying time
D)Purchase-order lead time
E)Customer-response time

Question 58

When are the relevant ordering and carrying costs equal in EOQ models?

Question 59

The square root in the EOQ model diminishes the effect of errors in predicting parameters.

Question 60

________ are the costs incurred to prevent,or the costs arising as a result of,the production of a low-quality product.

A)Costs of quality
B)Shrinkage costs
C)Purchasing costs
D)Ordering costs
E)Carrying costs

Question 61

The Plastic Saver company produces a specialty plastic product,and has the following information available concerning its inventory items:

Annual demand is 30,000 packages per year.The purchase price per package is $45.
Required:
a.Compute the economic order quantity and the relevant total costs.
b.Compute the total relevant costs,assuming the quantity ordered equals 1,250 units.How many deliveries will be required at the economic order quantity?

Question 62

________ is the purchase of materials so that they are delivered just as needed for production.

A)Appraisal
B)Just-in-time purchasing
C)Conformance quality
D)Manufacturing lead time
E)Manufacturing cycle efficiency

Question 63

Dane Manufacturing expects to spend $825,000 in 2013 in appraisal costs if it does not change its incoming materials inspection method.If it decides to implement a new receiving method,it will save $78,000 in fixed appraisal costs and variable costs of $0.40 per unit of finished product.The new method involves $125,000 in training costs and an additional $155,000 in annual equipment rental.It takes two units of material for each finished product.
Internal failure costs average $150 per failed unit of finished goods.During 2012,5% of all completed items had to be reworked.External failure costs average $425 per failed unit.The company's average external failures are 1% of units sold.The company carries no ending inventories,because all jobs are on a per order basis and a just-in-time inventory ordering method is used.
How much will external failure costs change,assuming 825,000 units of materials are received and product failures with customers are cut in half,with the new receiving method?

A)$402,200
B)$412,500
C)$424,800
D)$434,200
E)$442,800

Question 64

Flash is a distributor of flash drives.Office Mart is a local retail outlet which sells flash drives.Office Mart purchases from Office,Inc.at $0.80 per flash drive;and,the flash drives are shipped in packages of 30.Office,Inc.pays for all incoming freight,and Office Mart does not inspect the flash drives due to Office,Inc.'s reputation for high quality.Annual demand is 160,000 flash drives at a rate of 2,800 flash drives per week.Office Mart earns 12% on its cash investments.The purchase-order lead time is one week.The following costs are available:

Required
If Office Mart makes an order (1/12 of annual demand)once per month,what are the relevant total costs?

A)$5,593.60
B)$5.683.42
C)$6,284.68
D)$6,486.52
E)$7,286.59

Question 65

Why do managers establish business-to-business purchase-order links?

Question 66

Which of the following is not true about just-in-time purchasing?

A)Benefits include lower carrying costs as a result of quality.
B)Benefits include lower inspection costs as a result of quality.
C)Benefits include lower repair costs as a result of quality.
D)Just-in-time purchasing provides managers with immediate feedback about defects.
E)Benefits would be less if the analysis had included other costs of quality.

Question 67

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

A)Creates value streams.
B)Eliminates waste.
C)Does not compute individual product costs.
D)Fails to trace actual costs to the value stream.
E)Managers can dedicate resources to individual value streams.

Question 68

Why does the cost of placing a purchase order decrease?

Question 69

________ is a "demand pull" manufacturing system that manufactures each component in a production line as soon as,and only when,needed by the next step in the production line.

A)Bottle neck
B)Time driver
C)Value stream
D)Carrying costs
E)Just-in-time production

Question 70

Which of the following is not included in inventory management?

A)Stockout cost.
B)Purchasing costs.
C)Costs of quality.
D)Shrinkage costs.
E)Personnel costs.

Question 71

JIT inventory is not guided solely by the EOQ model because that model only emphasizes the tradeoff between relevant carrying and ordering costs.

Question 72

________ is a "push through" system that manufactures finished goods for inventory on the basis of demand forecasts.

A)Bottle neck
B)Time driver
C)Value stream
D)Carrying costs
E)Materials requirements planning

Question 73

What are the benefits of JIT purchasing?

Question 74

Tall Trees Incorporated is a distributor of swings.Toys'n'Tots is a local retail outlet which sells swings.Toys'n'Tots purchases the swings from Tall Trees Incorporated at $.80 per swing;the swings are shipped in cartons of 60.Tall Trees Incorporated pays all incoming freight,and Toys'n'Tots does not inspect the swings due to Tall Trees' reputation for high quality.Annual demand is 175,600 swings at a rate of 5,300 swings per week.The company earns 14% on its investments.The managerial accountant provided the following cost data:

If Toys'n'Tots makes an order (1/12 of annual demand)once per month,what are the relevant total costs?

A)$16,209.64
B)$17,708.86
C)$19,380.90
D)$24,117.15
E)$42,768.90

Question 75

A/an ________ system is an integrated set of software modules covering accounting,distribution,manufacturing,purchasing,human resources,and other functions.

A)design quality
B)economic order quantity
C)internal failure costing
D)external failure costing
E)enterprise resource planning

Question 76

Which of the following is not a benefit of business-to-business internet purchase-order links?

A)Trigger purchase order with a single computer entry.
B)Make electronic payments for delivery orders.
C)Reduce the cost of purchase orders.
D)Not restricted to ordering from a single supplier.
E)Manager is restricted to ordering from a single supplier.

Question 77

________ are all the value-added activities needed to design,manufacture,and deliver a given product or product line to customers.

A)Design quality
B)Time driver
C)Value streams
D)Economic order quantity
E)External failure costing

Question 78

________ is inventory held at all times regardless of the quantity of inventory ordered using the EOQ model.

A)Appraisal
B)Prevention
C)Bottleneck
D)Safety stock
E)Reorder point

Question 79

Companies that implement JIT purchasing choose their suppliers carefully and develop long-term supplier relationships.

Question 80

________ is a costing method that supports the creation of value to customers through cost value streams,as distinguished from individual products or departments.

A)Time driver
B)Design quality
C)Value stream
D)Lean accounting
E)Economic order quantity