Deck 19: Balanced Scorecard: Quality, Time, and the Theory of Constraints

Question 1

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

Answer 1

True

Question 2

Shortening delivery times is a minor part of the quality improvement process.

Answer 2

False

Question 3

Quality is defined 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.

Answer 3

True

Question 4

Spoilage is an example of:

A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs

Question 5

Which of the following FAIL to satisfy conformance quality?

A)machines that fail to meet the needs of customers
B)machines that break down
C)depositing a customer's check into the correct account
D)All of these answers are correct.

Question 6

A liability claim is an example of:

A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs

Question 7

Design engineering is an example of:

A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs

Question 8

Preventive equipment maintenance is an example of:

A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs

Question 9

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

Question 10

Cost of quality reports usually do NOT consider:

A)external failure costs
B)opportunity costs
C)internal failure costs
D)appraisal costs

Question 11

Examples of opportunity costs include:

A)lost sales
B)forgone contribution margin
C)lower production
D)All of these answers are correct.

Question 12

Costs incurred in detecting which of the individual units of products do NOT conform to specifications are:

A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs

Question 13

Answer the following questions using the information below:
Monticello Furniture manufactures expensive tables. Its varnishing department is fully automated and requires substantial inspection to keep the machines operating properly. An improperly varnished table is very expensive to correct. Inspection hours for the 5,000 tables varnished in September totaled 1,250 hours by 8 employees. Eight quarts of varnish were used, on average, for each table. The standard amount of varnish per table is nine quarts. The cost of inspection for September was equal to the budgeted amount of $38,000.
The $38,000 represents a(n):

A)activity cost pool
B)possible cost allocation base
C)internal failure cost
D)work-in-process control

Question 14

The cost of quality measure has all of the following advantages EXCEPT:

A)being a useful measure of comparing different quality improvement projects
B)serving as a common denominator for evaluating trade-offs among prevention and failure costs
C)focusing on how costly poor quality can be
D)being in existence in almost every production circumstance

Question 15

Rework is an example of:

A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs

Question 16

Quality of design measures how closely the characteristics of products or services match the needs and wants of customers. Conformance quality:

A)measures the same things
B)is the performance of a product or service according to design and product specifications
C)is making the product according to design, engineering, and manufacturing specifications
D)focuses on fitness of uses from a customer perspective

Question 17

Costs incurred in precluding the production of products that do NOT conform to specifications are:

A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs

Question 18

Answer the following questions using the information below:
Monticello Furniture manufactures expensive tables. Its varnishing department is fully automated and requires substantial inspection to keep the machines operating properly. An improperly varnished table is very expensive to correct. Inspection hours for the 5,000 tables varnished in September totaled 1,250 hours by 8 employees. Eight quarts of varnish were used, on average, for each table. The standard amount of varnish per table is nine quarts. The cost of inspection for September was equal to the budgeted amount of $38,000.
What is the inspection cost per unit?

A)$30.40
B)$7.60
C)$3,800
D)$4,000

Question 19

Quality management provides an important competitive edge because it:

A)reduces costs
B)increases customer satisfaction
C)often results in substantial savings and higher revenues in the short run
D)All of these answers are correct.

Question 20

Costs incurred by a nonconforming product detected before it is shipped to customers are:

A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure

Question 21

An example of a nonfinancial measure for customer satisfaction is:

A)delivery delay
B)employee turnover
C)number of defects on the production line
D)process yield

Question 22

Statistical quality control includes a control chart that:

A)graphs a series of random events of a process
B)plots each observation relative to specified ranges that represent the expected distribution
C)plots control observations over various periods of time
D)plots only those observations outside specified limits

Question 23

Appraisal costs are costs incurred to preclude the production of products that do NOT conform to specifications

Question 24

When evaluating alternatives to improve quality, both the relevant benefits as well as the relevant costs should be considered.

Question 25

Prevention costs include inspection and product testing.

Question 26

An example of a nonfinancial measure for customer satisfaction is:

A)Average manufacturing time for for key products
B)Contribution margin
C)Percentage of products that fail soon after delivery
D)Number of employees trained on managing bottleneck operations

Question 27

Warranty costs are an example of internal failure costs.

Question 28

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.
a. Retesting of reworked products
b. Downtime due to quality problems
c. Analysis of the cause of defects in production
d. Depreciation of test equipment
e. Warranty repairs
f. Lost sales arising from a reputation for poor quality
g. Quality circles
h. Rework direct manufacturing labor and overhead
i. Net cost of spoilage
j. Technical support provided to suppliers
k. Audits of the effectiveness of the quality system
l. Plant utilities in the inspection area
m. Reentering data because of keypunch errors

Question 29

When using a control chart, a manager does NOT investigate the activity when:

A)all observations are outside the preset range
B)some observations are outside the preset range
C)all observations are within the range of preset standard deviations
D)almost all observations are within the range of two standard deviations

Question 30

Costs of Quality (COQ)are classified into four categories: prevention costs, appraisal costs, inspection costs, and warranty costs.

Question 31

A quality improvement program is very costly to implement across a large corporation. Why do they do it? Explain.

Question 32

Internal failure costs are costs incurred on defective products after they have been shipped to customers

Question 33

The two basic aspects of quality are quality of design and conformance quality. Define and give an example of each.

Question 34

A graph of a series of successive observations of a particular step, procedure, or operation taken at regular intervals of time is a:

A)control chart
B)Pareto diagram
C)cause-and-effect diagram
D)fishbone diagrams

Question 35

Dawn and Kim just bought a bed and breakfast inn at a very attractive price. The business had been doing poorly. Before they reopened the inn for business, they attended a seminar on operating a high quality business. Now that they are ready to open the inn, they need some advice on quality costs and management.
Required:
Identify four categories of quality costs. In addition, identify three items that would be classified in each of the categories.

Question 36

Costs of quality (COQ)reports usually do NOT consider opportunity costs.

Question 37

Wilson's Language School manufactures CDs and DVDs to teach English as a Second Language. Wilson has just prepared a Cost of Quality Report, and the staff has noticed a decline in prevention costs as a percentage of total sales over a three-year period. What changes might Wilson expect to see in appraisal costs as a percentage of sales, internal failure costs as a percentage of sales, and external failure costs as a percentage of sales given this trend?

Question 38

Design quality refers to the performance of a product or service relative to its design and product specification.

Question 39

Write a paragraph outlining how a manufacturer of personal computers such as Dell Computer can benefit from the introduction of a quality improvement program.

Question 40

In the banking industry, depositing a customer's check into the wrong bank account is an example of quality of design failure.

Question 41

A control chart identifies potential causes of failures or defects.

Question 42

A tool which indicates how frequently each type of defect occurs is a:

A)control chart
B)Pareto diagram
C)cause-and-effect diagram
D)fishbone diagrams

Question 43

Discuss the methods used to identify quality problems.

Question 44

When using a control chart, the observations outside the upper and lower product specification limits are ordinarily regarded as non random and worth investigating.

Question 45

A tool which identifies potential causes of failures or defects is a:

A)control chart
B)Pareto diagram
C)cause-and-effect diagram
D)None of these answers is correct.

Question 46

A cause-and-effect diagram is used to help identify potential causes of defects.

Question 47

A corporation can measure its quality performance by using financial or nonfinancial measures of quality. Discuss the merits of each method and whether the use of one precludes the use of the other.

Question 48

Design Products is committed to its quality program. It works with all areas of the company to establish sound quality programs within reasonable budget guidelines. For 2011, it has budgeted $1,000,000 for prevention costs and $700,000 for appraisal costs. Internal failure has a budget of $100 per failed item, while external failure has a total budget of $600,000.
Product Testing has proposed to management a change in the 2011 budget for a new method of testing products. If management decides to implement the new method, $2 per unit of appraisal costs will be saved, up to a level of 200,000 tests. No additional savings are expected past the 200,000 level. The new method involves $90,000 in training costs and $60,000 in yearly testing supplies.
Traditionally, 3% of all completed items have to be reworked. External failure costs average $120 per failed unit. The company's average external failures are 1% of units sold. The company carries no ending inventories.
Required:
a. What is the adjusted budget for appraisal costs, assuming the new method is implemented and 800,000 units are tested during the manufacturing process in 2011?
b. How much do internal failure costs change, assuming 600,000 units are tested under the new method and it reduces the amount of unacceptable units in the manufacturing process by 40%?
c. What would be the change in the external failure budget, assuming external failures are reduced by 60% and the same facts as in part (b)?

Question 49

When considering customer needs and wants, only financial measures can be used, since they are easily measured.

Question 50

Answer the following questions using the information below:
Tri-State Manufacturing expects to spend $800,000 in 2012 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 $80,000 in fixed appraisal costs and variable costs of $0.40 per unit of finished product. The new method involves $120,000 in training costs and an additional $160,000 in annual equipment rental. It takes two units of material for each finished product.
Internal failure costs average $160 per failed unit of finished goods. During 2011, 5% of all completed items had to be reworked. External failure costs average $400 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 internal failure costs change, assuming 800,000 units of materials are received and that the new receiving method reduces the amount of UNACCEPTABLE product units in the manufacturing process by 10%?

A)$40,000 increase
B)$50,000 decrease
C)$160,000 decrease
D)$320,000 decrease

Question 51

An example of a nonfinancial measure of customer satisfaction would be the percentage of products that fail soon after delivery.

Question 52

A Pareto Diagram is usually in a bar-chart format, and it shows how often a particular problem has occurred.

Question 53

Three tools used to detect quality problems include control charts, Pareto charts, and cause and effect diagrams. Briefly explain each of these tools.

Question 54

The Custom Shirt House is concerned about its declining sales, especially the reduction in the number of customers. For the last two years, its shirts have won industry awards for high quality and trend-setting styles. At the latest executive managers' meeting, everyone was blaming everyone else for the decline. After much discussion and presenting some fact-finding information, it was determined that sales relationships were the cause of most of the problems.
Required:
What may be some of the causes and how can the causes be detected if product quality is not an issue?

Question 55

A measurement of market share is considered a financial measure of customer satisfaction.

Question 56

The number of design and process changes made to improve design quality or reduce costs of quality is a type of nonfinancial quality measure.

Question 57

Baby Care Products has just completed a very successful program of improving quality in its manufacturing operations. The next step is to improve the operations of its administrative functions, starting with the accounting information system. As the manager of the accounting operations, you are requested to begin a quality improvement program.
Required:
What are some possibilities of finding out about the current status of quality in the accounting system?

Question 58

Answer the following questions using the information below:
Tri-State Manufacturing expects to spend $800,000 in 2012 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 $80,000 in fixed appraisal costs and variable costs of $0.40 per unit of finished product. The new method involves $120,000 in training costs and an additional $160,000 in annual equipment rental. It takes two units of material for each finished product.
Internal failure costs average $160 per failed unit of finished goods. During 2011, 5% of all completed items had to be reworked. External failure costs average $400 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.
What is the net effect on appraisal costs for 2012, assuming the new receiving method is implemented and that 800,000 material units are received?

A)$120,000 increase
B)$120,000 decrease
C)$400,000 decrease
D)$400,000 increase

Question 59

Six Sigma emphasizes incremental rather than dramatic or disruptive innovation.

Question 60

Regarding the means by which relevant costs and benefits are evaluated when evaluating quality improvement, the key question is:

A)which alternative solution will make the customer happiest
B)how total costs and total revenues will change under each alternative solution
C)will the employees of the company be able to implement the change
D)how long will it take for the improvement program to be fully functional

Question 61

Answer the following questions using the information below:
Dylan Products has a budget of $1,200,000 in 2011 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs. The new method will require $40,000 in training costs and $150,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 210,000 units.
Appraisal costs for the year are budgeted at $500,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $20 per failed unit of finished goods. The internal failure rate is expected to be 4% of all completed items. The proposed changes will cut the internal failure rate by one-half. Internal failure units are destroyed. External failure costs average $48 per failed unit. The company's average external failures average 2.5% of units sold. The new proposal will reduce this rate to 1%. Assume all units produced are sold and there are no ending inventories.
An important difference between financial measures of quality and nonfinancial measures of quality is that:

A)financial measures of quality tend to be useful indicators of future long-term performance, while nonfinancial measures have more of a short-term focus
B)nonfinancial measures of quality tend to be useful indicators of future long-term performance, while financial measures of quality have more of a short-term focus
C)nonfinancial measures are generally too subjective to have any long-term value
D)None of these answers is correct.

Question 62

Answer the following questions using the information below:
Dylan Products has a budget of $1,200,000 in 2011 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs. The new method will require $40,000 in training costs and $150,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 210,000 units.
Appraisal costs for the year are budgeted at $500,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $20 per failed unit of finished goods. The internal failure rate is expected to be 4% of all completed items. The proposed changes will cut the internal failure rate by one-half. Internal failure units are destroyed. External failure costs average $48 per failed unit. The company's average external failures average 2.5% of units sold. The new proposal will reduce this rate to 1%. Assume all units produced are sold and there are no ending inventories.
What is the net change in the budget of prevention costs if the procedures are automated in 2011? Will management agree with the changes?

A)$100,000 decrease, yes
B)$90,000 decrease, yes
C)$190,000 increase, no
D)$100,000 increase, yes

Question 63

Answer the following questions using the information below:
LaCrosse Products has a budget of $900,000 in 2012 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $80,000 in variable costs. The new method will require $40,000 in training costs and $100,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units.
Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories.
What is the net change in the budget of prevention costs if the procedures are automated in 2012? Will management agree with the changes?

A)$60,000 decrease, yes
B)$60,000 increase, yes
C)$140,000 increase, no
D)$80,000 decrease, yes

Question 64

Answer the following questions using the information below:
LaCrosse Products has a budget of $900,000 in 2012 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $80,000 in variable costs. The new method will require $40,000 in training costs and $100,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units.
Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories.
How much do external failure costs change if all changes are as anticipated with the new prevention procedures? Assume all units produced are sold and there are no ending inventories.

A)$121,500 decrease
B)$121,500 increase
C)$243,000 decrease
D)None of these answers is correct.

Question 65

Answer the following questions using the information below:
Dylan Products has a budget of $1,200,000 in 2011 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs. The new method will require $40,000 in training costs and $150,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 210,000 units.
Appraisal costs for the year are budgeted at $500,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $20 per failed unit of finished goods. The internal failure rate is expected to be 4% of all completed items. The proposed changes will cut the internal failure rate by one-half. Internal failure units are destroyed. External failure costs average $48 per failed unit. The company's average external failures average 2.5% of units sold. The new proposal will reduce this rate to 1%. Assume all units produced are sold and there are no ending inventories.
A DISADVANTAGE of nonfinancial measures of quality include that they are:

A)often difficult to quantify
B)often difficult to understand
C)not useful indicators of future long-run performance
D)None of these answers is correct.

Question 66

Answer the following questions using the information below:
Dylan Products has a budget of $1,200,000 in 2011 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs. The new method will require $40,000 in training costs and $150,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 210,000 units.
Appraisal costs for the year are budgeted at $500,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $20 per failed unit of finished goods. The internal failure rate is expected to be 4% of all completed items. The proposed changes will cut the internal failure rate by one-half. Internal failure units are destroyed. External failure costs average $48 per failed unit. The company's average external failures average 2.5% of units sold. The new proposal will reduce this rate to 1%. Assume all units produced are sold and there are no ending inventories.
How much will appraisal costs change assuming that the new prevention methods reduce material failures by 30% in the appraisal phase?

A)$150,000 decrease
B)$229,000 decrease
C)$50,000 increase
D)$50,000 decrease

Question 67

Allocated cost amounts are an important determinant of the costs of a quality improvement program.

Question 68

Answer the following questions using the information below:
LaCrosse Products has a budget of $900,000 in 2012 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $80,000 in variable costs. The new method will require $40,000 in training costs and $100,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units.
Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories.
How much will internal failure costs change if the internal product failures are reduced by 1/3 with the new procedures?

A)$22,500 decrease
B)$67,500 decrease
C)$500,000 decrease
D)$750,000 decrease

Question 69

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

Question 70

Answer the following questions using the information below:
LaCrosse Products has a budget of $900,000 in 2012 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $80,000 in variable costs. The new method will require $40,000 in training costs and $100,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units.
Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories.
Management has offered to allow the prevention changes if all changes take place as anticipated and the amounts netted are less than the cost of the equipment. What is the net impact of all the changes created by the preventive changes?

A)$140,000
B)$(22,500)
C)$(134,000)
D)$(121,500)

Question 71

Answer the following questions using the information below:
LaCrosse Products has a budget of $900,000 in 2012 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $80,000 in variable costs. The new method will require $40,000 in training costs and $100,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units.
Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories.
How much will appraisal costs change assuming the new prevention methods reduce material failures by 40% in the appraisal phase?

A)$140,000 decrease
B)$60,000 increase
C)$50,000 decrease
D)$22,500 decrease

Question 72

Most companies expend a substantial amount of dollars measuring the financial costs of design quality.

Question 73

Answer the following questions using the information below:
Dylan Products has a budget of $1,200,000 in 2011 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs. The new method will require $40,000 in training costs and $150,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 210,000 units.
Appraisal costs for the year are budgeted at $500,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $20 per failed unit of finished goods. The internal failure rate is expected to be 4% of all completed items. The proposed changes will cut the internal failure rate by one-half. Internal failure units are destroyed. External failure costs average $48 per failed unit. The company's average external failures average 2.5% of units sold. The new proposal will reduce this rate to 1%. Assume all units produced are sold and there are no ending inventories.
Management has offered to allow the prevention changes if all changes take place as anticipated and the amounts netted are less than the cost of the equipment. What is the net impact of all the changes created by the preventive changes?

A)$185,200
B)$(185,200)
C)$(134,200)
D)$(279,200)

Question 74

Answer the following questions using the information below:
Dylan Products has a budget of $1,200,000 in 2011 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs. The new method will require $40,000 in training costs and $150,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 210,000 units.
Appraisal costs for the year are budgeted at $500,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $20 per failed unit of finished goods. The internal failure rate is expected to be 4% of all completed items. The proposed changes will cut the internal failure rate by one-half. Internal failure units are destroyed. External failure costs average $48 per failed unit. The company's average external failures average 2.5% of units sold. The new proposal will reduce this rate to 1%. Assume all units produced are sold and there are no ending inventories.
How much will internal failure costs change if the internal product failures are reduced by 50% with the new procedures?

A)$168,000 decrease
B)$126,000 decrease
C)$ 84,000 decrease
D)$ 84,000 increase

Question 75

Answer the following questions using the information below:
Dylan Products has a budget of $1,200,000 in 2011 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs. The new method will require $40,000 in training costs and $150,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 210,000 units.
Appraisal costs for the year are budgeted at $500,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $20 per failed unit of finished goods. The internal failure rate is expected to be 4% of all completed items. The proposed changes will cut the internal failure rate by one-half. Internal failure units are destroyed. External failure costs average $48 per failed unit. The company's average external failures average 2.5% of units sold. The new proposal will reduce this rate to 1%. Assume all units produced are sold and there are no ending inventories.
Examples of nonfinancial measures of quality include the:

A)percentage of defective units shipped to customers as a percentage of total units shipped
B)number of customer complaints
C)percent of products that experience early or excessive failure
D)All of these answers are correct.

Question 76

Discuss the means by which a company goes about evaluating and installing a new quality improvement program.

Question 77

Answer the following questions using the information below:
Dylan Products has a budget of $1,200,000 in 2011 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs. The new method will require $40,000 in training costs and $150,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 210,000 units.
Appraisal costs for the year are budgeted at $500,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $20 per failed unit of finished goods. The internal failure rate is expected to be 4% of all completed items. The proposed changes will cut the internal failure rate by one-half. Internal failure units are destroyed. External failure costs average $48 per failed unit. The company's average external failures average 2.5% of units sold. The new proposal will reduce this rate to 1%. Assume all units produced are sold and there are no ending inventories.
How much do external failure costs change if all the changes are as the new prevention procedures anticipated? Assume all units produced are sold and there are no ending inventories.

A)$126,000 decrease
B)$151,200 decrease
C)$100,800 decrease
D)None of these answers is correct.

Question 78

Cost of Quality financial measures will usually deteriorate when nonfinancial measures of quality are emphasized and improved.

Question 79

The financial cost of quality measures serves as a common denominator for evaluating trade-offs among prevention costs and failure costs.

Question 80

Answer the following questions using the information below:
Dylan Products has a budget of $1,200,000 in 2011 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs. The new method will require $40,000 in training costs and $150,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 210,000 units.
Appraisal costs for the year are budgeted at $500,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $20 per failed unit of finished goods. The internal failure rate is expected to be 4% of all completed items. The proposed changes will cut the internal failure rate by one-half. Internal failure units are destroyed. External failure costs average $48 per failed unit. The company's average external failures average 2.5% of units sold. The new proposal will reduce this rate to 1%. Assume all units produced are sold and there are no ending inventories.
Nonfinancial measures of quality are of limited use by themselves. They are more informative when they are:

A)combined with trend analysis
B)used with the half-life depreciation method
C)used with nonroutine financial data
D)None of these answers is correct.