Deck 12: Quality Management and Measurement

Question 1

The primary focus of a management information system is management of costs.

Answer 1

False

Question 2

A management information system can be designed to support many different types of management philosophies.

Answer 2

True

Question 3

Traditional management information systems focus on financial reporting.

Answer 3

True

Question 4

As a consequence of many manufacturing firms attempting to reduce the number of suppliers with which they deal, vendors that supply high-quality products and reliable delivery schedules may expect increased business.

Question 5

Reducing the costs of quality and increasing overall product quality can be achieved simultaneously.

Question 6

The last step in ensuring the production of high-quality products is to have a sound product design.

Question 7

The key to good quality control is to evaluate quality early enough so that changes are made before the product is sold.

Question 8

Cost control concerns have largely been replaced with concern for nonfinancial measures in JIT settings.

Question 9

Total quality management requires all business functions to work together to ensure product quality.

Question 10

The key to good quality control is to have periodic inspection points staffed by qualified quality control personnel.

Question 11

Total quality management seeks continuous improvement on product quality and analyzes performance using nonfinancial measures.

Question 12

External failure costs are the costs incurred after the product is shipped or the service is delivered to the customer.

Question 13

Internal failure costs and prevention costs make up the costs of conformance.

Question 14

As a consequence of many manufacturing firms attempting to reduce the number of suppliers with which they deal, vendors that do not supply products with high quality and reliable delivery schedules may expect to be forced out of business.

Question 15

The first step in ensuring the production of high-quality products is to have a sound product design.

Question 16

The two components of costs of quality are costs of conformance and costs of nonconformance.

Question 17

Traditionally, the point of sale and shipment of a product has ended the management accountant's responsibility with respect to the product. In a new manufacturing environment, the measure of customer satisfaction may be an accounting responsibility too.

Question 18

Many traditional management information systems do not produce meaningful results for today's business environment.

Question 19

A management information system is not designed to provide data about individual customers.

Question 20

Low costs of conformance usually result in high costs of nonconformance.

Question 21

Benchmarking and process mapping are two methods to measure quality.

Question 22

The overall objective of controlling the costs of quality is to eliminate

A) appraisal costs.
B) costs of nonconformance.
C) costs of conformance.
D) the costs of quality.

Question 23

The Malcolm Baldrige Quality Award was created by the U.S. Congress.

Question 24

The Baldrige performance criteria focus on a single aspect of quality.

Question 25

Information captured by a management information system allows managers to do all of the following except

A) determine accurate product or service costs.
B) improve processes.
C) provide timely feedback.
D) satisfy all customer inquiries.

Question 26

How does an ERP system differ from an MIS?

A) The ERP system informally links the different areas of management for specific purposes.
B) There is no difference.
C) The ERP system combines all areas of management into one centralized data warehouse.
D) The ERP system can be used only in a service business.

Question 27

Which of the following is a good indicator of management's strong commitment to product quality?

A) Product recalls increased as a percentage of sales
B) Nonconformance costs increased as a percentage of total quality costs
C) Customer service costs reduced by 70 percent over the previous year
D) High costs of conformance to quality

Question 28

Service businesses cannot measure the quality of their work.

Question 29

At present, very few countries belong to the ISO.

Question 30

Quality in manufacturing simply means a product has to be dependable and free of defects.

Question 31

Though focus on quality is considered a modern management issue, the Deming Application Prize actually originated in 1951.

Question 32

The organization that promotes improvement in quality worldwide is called the International Organization for Standardization.

Question 33

The primary focus of a management information system is on the management of

A) people.
B) costs.
C) activities.
D) time.

Question 34

The Six Sigma quality standard was used by Motorola to improve its performance.

Question 35

Managers' concerns about the quality of a product or service include customer defections.

Question 36

Which of the following is not an example of a conformance cost?

A) Prevention cost
B) Appraisal cost
C) Quality engineering cost
D) External failure cost

Question 37

In the new manufacturing environment, the point of sale and shipment of a product ends the management accountant's responsibility with respect to the product.

Question 38

Maxine Lavon is the controller for Prater Industries. She has been asked to develop a plan for installing a management information system in her company. She will need to do all of the following to help managers except

A) evaluate.
B) perform.
C) repeat.
D) plan.

Question 39

Quality costs of conformance and costs of nonconformance are related to each other

A) rarely.
B) directly.
C) indirectly.
D) inversely.

Question 40

The Deming Application Prize for quality originated in Japan.

Question 41

CAD is

A) a cost allocating decision.
B) computer aided downtime.
C) a computer-based engineering system.
D) an organizational environment.

Question 42

When a firm changes to a JIT operating and management philosophy,

A) it attempts to increase the number of suppliers it has for each item it uses to ensure a reliable flow of materials into the production process.
B) it seeks out the lowest-cost bidder for supplies in order to minimize costs.
C) it works more closely with fewer suppliers.
D) all of these are correct.

Question 43

United Insurance Agency incurred the following activity costs related to service quality.
$\begin{array}{ll}\text{Total sales}&\$ 1,000,000\\\text{Costs of quality:}&\\\text { Prevention } & 50,000 \\ \text { Appraisal } & 47,000 \\ \text { Internal failure } & 36,000 \\ \text { External failure } & 64,000\end{array}$
Costs of conformance total

A) $15,500.
B) $55,000.
C) $120,000.
D) $131,400.

Question 44

Erin Stover has been appointed chief accountant for Dancer Industries. The company has three divisions that manufacture floor tiles. The industry is very competitive, and Dancer Industries has lost market share in each of the last four years. Three years ago, management announced a companywide restructuring and the adoption of total quality management. Since that time, each of the divisions has been allowed to chart its own path toward TQM. Stover is new to the company and has asked to see summary figures of the costs of quality for each of the divisions. The following data were presented to her for the past six months: Nonconformance costs for the total company are

A) $239,470.
B) $243,320.
C) $252,010.
D) $248,160.

Question 45

Lipps Company manufactures custom-designed medical equipment for paramedic units. In May 2010, the company incurred the following costs of quality:
$\begin{array}{|l|l|}\hline \text { Prochuct de sign costs } & \$ 8,600 \\\hline \text { Product recall costs } & 5,200 \\\hline \text { Product simulation costs } & 13,500 \\\hline \text { Product testing costs } & 3,500 \\\hline \text { Product } \text {warranty claims } & 2,000 \\\hline \text { Scrap and rework costs } & 3,000 \\\hline\end{array}$
Total quality costs of nonconformance for May were

A) $24,200.
B) $13,700.
C) $10,200.
D) $8,200.

Question 46

Measures of customer complaints and warranty claims are used in tracking

A) materials/scrap control performance.
B) inventory performance.
C) quality performance.
D) delivery performance.

Question 47

Some companies have moved to JIT without changing the substance of their accounting systems. Relying on the former accounting system may present problems for management because

A) traditional accounting systems are designed to track items (labor efficiency, purchase price, overhead absorption) that are no longer primary concerns of management.
B) control of cost drivers will be lost.
C) managers do not understand the new manufacturing environment.
D) traditional accounting systems discourage the creation of large inventories that are necessary to ensure uninterrupted production runs.

Question 48

Erin Stover has been appointed chief accountant for Dancer Industries. The company has three divisions that manufacture floor tiles. The industry is very competitive, and Dancer Industries has lost market share in each of the last four years. Three years ago, management announced a companywide restructuring and the adoption of total quality management. Since that time, each of the divisions has been allowed to chart its own path toward TQM. Stover is new to the company and has asked to see summary figures of the costs of quality for each of the divisions. The following data were presented to her for the past six months: Total quality costs as a percentage of sales for the total company are

A) 3.77 percent.
B) 13.13 percent.
C) 3.85 percent.
D) 7.62 percent.

Question 49

Woodruff Company manufactures custom-designed medical equipment for paramedic units. In June 2010, the company incurred the following costs of quality:
$\begin{array}{|l|l|}\hline \text { Prochuct design costs } & \$ 12,800 \\\hline \text { Prochict recall costs } & 6,700 \\\hline \text { Product simulation costs } & 20,500 \\\hline \text { Product testing costs } & 8, 000 \\\hline \text { Prochict warranty claims } & 3,000 \\\hline \text { Scrap and rework costs } & 5, 000 \\\hline & \\\hline\end{array}$
Total quality costs of nonconformance for June were

A) $11,700.
B) $14,700.
C) $22,700.
D) $15,700.

Question 50

Erin Stover has been appointed chief accountant for Dancer Industries. The company has three divisions that manufacture floor tiles. The industry is very competitive, and Dancer Industries has lost market share in each of the last four years. Three years ago, management announced a companywide restructuring and the adoption of total quality management. Since that time, each of the divisions has been allowed to chart its own path toward TQM. Stover is new to the company and has asked to see summary figures of the costs of quality for each of the divisions. The following data were presented to her for the past six months: Conformance costs as a percentage of sales for Armstrong County are

A) 4.66 percent.
B) 4.97 percent.
C) 6.43 percent.
D) 3.20 percent.

Question 51

Erin Stover has been appointed chief accountant for Dancer Industries. The company has three divisions that manufacture floor tiles. The industry is very competitive, and Dancer Industries has lost market share in each of the last four years. Three years ago, management announced a companywide restructuring and the adoption of total quality management. Since that time, each of the divisions has been allowed to chart its own path toward TQM. Stover is new to the company and has asked to see summary figures of the costs of quality for each of the divisions. The following data were presented to her for the past six months: Nonconformance costs as a percentage of sales for Butler County are

A) 2.79 percent.
B) 3.44 percent.
C) 4.04 percent.
D) 4.69 percent.

Question 52

Erin Stover has been appointed chief accountant for Dancer Industries. The company has three divisions that manufacture floor tiles. The industry is very competitive, and Dancer Industries has lost market share in each of the last four years. Three years ago, management announced a companywide restructuring and the adoption of total quality management. Since that time, each of the divisions has been allowed to chart its own path toward TQM. Stover is new to the company and has asked to see summary figures of the costs of quality for each of the divisions. The following data were presented to her for the past six months: Conformance costs for Adams County Division are

A) $84,210.
B) $87,220.
C) $94,350.
D) $77,080.

Question 53

With respect to product quality,

A) quality must be "traded off" against cost considerations.
B) the best quality control systems rely on inspection points to ensure product quality.
C) accountants do not need to be concerned with quality control reporting, as it is entirely nonfinancial in nature.
D) quality output starts with correct product design.

Question 54

Erin Stover has been appointed chief accountant for Dancer Industries. The company has three divisions that manufacture floor tiles. The industry is very competitive, and Dancer Industries has lost market share in each of the last four years. Three years ago, management announced a companywide restructuring and the adoption of total quality management. Since that time, each of the divisions has been allowed to chart its own path toward TQM. Stover is new to the company and has asked to see summary figures of the costs of quality for each of the divisions. The following data were presented to her for the past six months: $\begin{array}{c}\begin{array}{|l}\hline\\\\\hline\\\hline\text{Sales}\\\hline\text{Appraisil costs}\\\hline\text{External failure costs}\\\hline\text{Internal failure costs}\\\hline\text{Prevention costs}\\\hline\text{Total costs of quality}\\\hline\\\hline\\\end{array}\begin{array}{|l|l|}\hline \text { Adaus County Division } & \text { Aruistrong County } \\& \text { Division } \\\hline & \\\hline \$ 2,650,000 & \$ 1,653,125 \\\hline \$ 52,110 & \$ 27,460 \\\hline 44,980 & 49,560 \\\hline 32,100 & 56,780 \\\hline 42,240 & 25,440 \\\hline \$171,430 & \$ 159,240 \\\hline & \\\hline & \\\end{array}\begin{array}{l|l|} \hline\text { Butler County Division}&\text{Conpany Totals }\\& \\\hline \\\hline \$ 2,150,000 & \$ 6,453,125 \\\hline \$ 42,570 & \$ 122,140 \\\hline 31,450 & 125,990 \\\hline 28,450 & 117,330 \\\hline 58,340 & 126,020 \\\hline \$ 160,810 & \$ 491,480 \\\hline & \\\hline &\\\end{array}\end{array}$ Nonconformance costs for Armstrong County Division are

A) $77,020.
B) $106,340.
C) $52,900.
D) $75,000.

Question 55

Woodruff Company manufactures custom-designed medical equipment for paramedic units. In June 2010, the company incurred the following costs of quality:
$\begin{array}{|l|l|}\hline \text { Prochuct design costs } & \$ 12,800 \\\hline \text { Prochict recall costs } & 6,700 \\\hline \text { Product simulation costs } & 20,500 \\\hline \text { Product testing costs } & 8, 000 \\\hline \text { Prochict warranty claims } & 3,000 \\\hline \text { Scrap and rework costs } & 5, 000 \\\hline & \\\hline\end{array}$
Total quality costs of conformance for June were

A) $41,300.
B) $32,800.
C) $40,300.
D) $43,800.

Question 56

Erin Stover has been appointed chief accountant for Dancer Industries. The company has three divisions that manufacture floor tiles. The industry is very competitive, and Dancer Industries has lost market share in each of the last four years. Three years ago, management announced a companywide restructuring and the adoption of total quality management. Since that time, each of the divisions has been allowed to chart its own path toward TQM. Stover is new to the company and has asked to see summary figures of the costs of quality for each of the divisions. The following data were presented to her for the past six months: $\begin{array}{c}\begin{array}{|l}\hline\\\\\hline\\\hline\text{Sales}\\\hline\text{Appraisil costs}\\\hline\text{External failure costs}\\\hline\text{Internal failure costs}\\\hline\text{Prevention costs}\\\hline\text{Total costs of quality}\\\hline\\\hline\\\end{array}\begin{array}{|l|l|}\hline \text { Adaus County Division } & \text { Aruistrong County } \\& \text { Division } \\\hline & \\\hline \$ 2,650,000 & \$ 1,653,125 \\\hline \$ 52,110 & \$ 27,460 \\\hline 44,980 & 49,560 \\\hline 32,100 & 56,780 \\\hline 42,240 & 25,440 \\\hline \$171,430 & \$ 159,240 \\\hline & \\\hline & \\\end{array}\begin{array}{l|l|} \hline\text { Butler County Division}&\text{Conpany Totals }\\& \\\hline \\\hline \$ 2,150,000 & \$ 6,453,125 \\\hline \$ 42,570 & \$ 122,140 \\\hline 31,450 & 125,990 \\\hline 28,450 & 117,330 \\\hline 58,340 & 126,020 \\\hline \$ 160,810 & \$ 491,480 \\\hline & \\\hline &\\\end{array}\end{array}$ Conformance costs as a percentage of sales for the total company are

A) 3.91 percent.
B) 7.62 percent.
C) 3.85 percent.
D) 3.77 percent.

Question 57

Erin Stover has been appointed chief accountant for Dancer Industries. The company has three divisions that manufacture floor tiles. The industry is very competitive, and Dancer Industries has lost market share in each of the last four years. Three years ago, management announced a companywide restructuring and the adoption of total quality management. Since that time, each of the divisions has been allowed to chart its own path toward TQM. Stover is new to the company and has asked to see summary figures of the costs of quality for each of the divisions. The following data were presented to her for the past six months: Conformance costs for Butler County Division are

A) $100,910.
B) $89,790.
C) $71,020.
D) $59,900.

Question 58

Internal reports on quality at the Acme Publishing Company generated the following information for the Trade Division for the first three months of the year:
$\begin{array}{ll}\text{Total sales}&\$ 1,000,000\\\text{Costs of quality:}&\\\text { Prevention } & 44,000 \\ \text { Appraisal } & 47,000 \\ \text { Internal failure } & 36,000 \\ \text { External failure } & 64,000\end{array}$
Compute the total costs of quality as a percentage of sales.

A) 2.4%
B) 4.4%
C) 12.6%
D) 19.1%

Question 59

Erin Stover has been appointed chief accountant for Dancer Industries. The company has three divisions that manufacture floor tiles. The industry is very competitive, and Dancer Industries has lost market share in each of the last four years. Three years ago, management announced a companywide restructuring and the adoption of total quality management. Since that time, each of the divisions has been allowed to chart its own path toward TQM. Stover is new to the company and has asked to see summary figures of the costs of quality for each of the divisions. The following data were presented to her for the past six months: $\begin{array}{c}\begin{array}{|l}\hline\\\\\hline\\\hline\text{Sales}\\\hline\text{Appraisil costs}\\\hline\text{External failure costs}\\\hline\text{Internal failure costs}\\\hline\text{Prevention costs}\\\hline\text{Total costs of quality}\\\hline\\\hline\\\end{array}\begin{array}{|l|l|}\hline \text { Adaus County Division } & \text { Aruistrong County } \\& \text { Division } \\\hline & \\\hline \$ 2,650,000 & \$ 1,653,125 \\\hline \$ 52,110 & \$ 27,460 \\\hline 44,980 & 49,560 \\\hline 32,100 & 56,780 \\\hline 42,240 & 25,440 \\\hline \$171,430 & \$ 159,240 \\\hline & \\\hline & \\\end{array}\begin{array}{l|l|} \hline\text { Butler County Division}&\text{Conpany Totals }\\& \\\hline \\\hline \$ 2,150,000 & \$ 6,453,125 \\\hline \$ 42,570 & \$ 122,140 \\\hline 31,450 & 125,990 \\\hline 28,450 & 117,330 \\\hline 58,340 & 126,020 \\\hline \$ 160,810 & \$ 491,480 \\\hline & \\\hline &\\\end{array}\end{array}$ Total quality costs as a percentage of sales for Adams County are

A) 2.91 percent.
B) 3.56 percent.
C) 6.47 percent.
D) 9.63 percent.

Question 60

Lipps Company manufactures custom-designed medical equipment for paramedic units. In May 2010, the company incurred the following costs of quality:
$\begin{array}{|l|l|}\hline \text { Prochuct de sign costs } & \$ 8,600 \\\hline \text { Product recall costs } & 5,200 \\\hline \text { Product simulation costs } & 13,500 \\\hline \text { Product testing costs } & 3,500 \\\hline \text { Product } \text {warranty claims } & 2,000 \\\hline \text { Scrap and rework costs } & 3,000 \\\hline\end{array}$
Total quality costs of conformance for May were

A) $27,600.
B) $11,600.
C) $25,600.
D) $22,100.

Question 61

The term given to the act of a company comparing its processes to similar processes in a successful company is called

A) process mapping.
B) TQM.
C) benchmarking.
D) return on quality.

Question 62

XYZ Cosmetics, Inc., has developed a set of nonfinancial measures to evaluate on-time product delivery performance for one of its best-selling cosmetics. The following data have been generated for the past four weeks: $\begin{array}{llll}&\text { Purcliase } & \text { Production }& \\&\text { Order } & \text { Cycle }& \text { Delivery }\\\text { Week } & \text { Lead Time } & \text { Time } & \text { Time } \\1 & 2.4 \text { days } & 3.5 \text { days } & 4.0 \text { days } \\2 & 2.3 \text { days } & 3.4 \text { days } & 3.6 \text { days } \\3 & 2.4 \text { days } & 3.3 \text { days } & 3.4 \text { days } \\4 & 2.2 \text { days } & 3.1 \text { days } & 3.7 \text { days }\end{array}$
Compute total delivery cycle time for each week and evaluate the product delivery performance. Which area still needs management's attention?

A) Purchase order lead time
B) Production cycle time
C) Delivery time
D) None, all have improved over the past four weeks.

Question 63

With which of the following products would the ISO most likely deal?

A) Office chairs
B) Stereo speakers
C) Computer disks
D) Coffee mugs

Question 64

Internal reports on quality at the Acme Publishing Company generated the following information for the Trade Division for the first three months of the year:
$\begin{array}{ll}\text{Total sales}&\$ 1,000,000\\\text{Costs of quality:}&\\\text { Prevention } & 50,000 \\ \text { Appraisal } & 47,000 \\ \text { Internal failure } & 36,000 \\ \text { External failure } & 64,000\end{array}$
Compute the ratio of costs of nonconformance to total costs of quality.

A) 39.4%
B) 50.8%
C) 60.5%
D) 100%

Question 65

W. Edwards Deming stressed improved quality as a means of improving a company's

A) efficiency and profits.
B) product flow.
C) reputation.
D) customer base.

Question 66

All-aboard Travel Agency incurred the following activity costs related to the quality of service. Identify those costs that are costs of conformance (CC) and those costs that are costs of nonconformance (CN).
_____ a. Reservation processing improvements
_____ b. Customer complaint processing
_____ c. Personnel training
_____ d. Computer downtime
_____ e. Proofreading tickets and confirmations

Question 67

The award given to companies that achieve distinctive results in implementing total quality control is the

A) ISO.
B) Malcolm Baldrige Quality Award.
C) Deming Application Prize.
D) Kaizen Prize.

Question 68

Which of these is not a category considered for evaluation when awarding the Malcolm Baldrige Quality Award?

A) Business results
B) Leadership
C) Net operating income
D) Human resource focus

Question 69

Internal reports on quality at the Acme Publishing Company generated the following information for the Trade Division for the first three months of the year:
$\begin{array}{ll}\text{Total sales}&\$ 1,000,000\\\text{Costs of quality:}&\\\text { Prevention } & 44,000 \\ \text { Appraisal } & 47,000 \\ \text { Internal failure } & 36,000 \\ \text { External failure } & 64,000\end{array}$
Compute the ratio of costs of conformance to total costs of quality.

A) 44.6%
B) 47.6%
C) 50.1%
D) 100%

Question 70

XYZ Cosmetics, Inc., has developed a set of nonfinancial measures to evaluate on-time product delivery performance for one of its best-selling cosmetics. The following data have been generated for the past four weeks: $\begin{array}{llll}&\text { Purcliase } & \text { Production }& \\&\text { Order } & \text { Cycle }& \text { Delivery }\\\text { Week } & \text { Lead Time } & \text { Time } & \text { Time } \\1 & 2.4 \text { days } & 3.5 \text { days } & 4.0 \text { days } \\2 & 2.0 \text { days } & 3.1 \text { days } & 3.6 \text { days } \\3 & 2.4 \text { days } & 3.3 \text { days } & 3.4 \text { days } \\4 & 2.5 \text { days } & 3.2 \text { days } & 3.3 \text { days }\end{array}$
Compute total delivery cycle time for Week 2.

A) 3.0 days
B) 6.4 days
C) 8.7 days
D) 7.0 days

Question 71

Which company improved by using the Six Sigma quality standard?

A) Disney
B) Lucent Technologies
C) Motorola
D) Amazon.com

Question 72

Internal reports on quality at the Acme Publishing Company generated the following information for the Trade Division for the first three months of the year:
$\begin{array}{ll}\text{Total sales}&\$ 1,000,000\\\text{Costs of quality:}&\\\text { Prevention } & 22,500 \\ \text { Appraisal } & 47,000 \\ \text { Internal failure } & 36,000 \\ \text { External failure } & 64,000\end{array}$
Compute the costs of nonconformance as a percentage of total sales.

A) 12.0%
B) 5.4%
C) 1.3%
D) 10%

Question 73

Which of the following specific measures of vendor quality would be used when evaluating vendors that supply a company with direct materials?

A) Defect-free material as a percentage of total materials received
B) Number of customer complaints
C) Time it takes to make a product
D) All would be considered to assess vendor quality of direct materials.

Question 74

Identify and describe three traits that differentiate management information systems (MIS) from traditional management accounting techniques.

Question 75

Discuss how the importance of product and service quality is recognized in industry today. Site examples of awards and organizations in your discussion.

Question 76

The following statement appears in the annual report of Ryan, Inc., for the year ended January 1, 2008: "We are confident that our ever-increasing emphasis on customer service will enhance our reputation as the finest retailer in our industry." Identify two nonfinancial measures of good quality and two nonfinancial measures of poor quality Ryan, Inc., might apply.

Question 77

Linda Klein is the chief accountant for Hogan Industries. The company has three divisions that manufacture wind velocity gauges. The industry is very competitive, and Hogan Industries has lost market share in each of the last four years. Three years ago, management announced a companywide restructuring and the adoption of total quality management. Since that time, each of the divisions has been allowed to chart its own path toward TQM. Klein is new to the company and has asked to see summary figures of the costs of quality for each of the divisions. The following data for the past six months were presented to her:
$\begin{array}{|c|c|c|c|c|}\hline&\text { Clarion County Division}& \text { Jefferson County Division } & \text { Crawford County Division }&\text { Conpauy Totals }\\\hline \text { Sales: } & \$ 2,200,400 & \$ 2,100,900 & \$ 2,300,100 & \$ 6,601,400 \\\hline \text { Appraisal costs } & \$ 41,340 & \text { \$ } 20,980 & \$ 44,210 & \$ 106,530 \\\hline \text { External failure costs } & 37,980 & 53,560 & 23,450 & 114,990 \\\hline \text { Internal failure costs } & 31,100 & 49,780 & 28,450 & 109,330 \\\hline \text { Prevention costs } & 44,680 & 18,880 & 60,120 & 123,680 \\\hline\text { Total costs of auality }&\$155,100&\$143,200&\$156,230&\$454,530\\\hline\end{array}$
Evaluate the three divisions' programs by first computing the costs of conformance and the costs of nonconformance of each division. Also compute quality costs as a percentage of sales for each division. Identify the division that is developing the strongest quality program. Which division has been slowest to react to the management directive of TQM? Defend your answers. Round percentages to three places beyond the decimal point.

Question 78

Travis Morgan is the chief accountant for Hill Industries. The company has three divisions that manufacture computer disk drives. The industry is very competitive, and Hill Industries has lost market share in each of the last four years. Three years ago, management announced a companywide restructuring and the adoption of total quality management. Since that time, each of the divisions has been allowed to chart its own path toward TQM. Travis Morgan is new to the company and has asked to see summary figures of the costs of quality for each of the divisions. The following data for the past six months were presented to him:
$\begin{array}{|l|l|l|l|l|}\hline &\text { L.A. County Division}& \text { Orange County Division}& \text { San Diego County Division}& \text { Company Totals}\\\hline \text { Sales } & \$ 1,125,000 & \$ 1,050,000 & \$ 1,200,000 & \$ 3,375,000 \\\hline \text { Appraisal costs } & \$ 18,640 & \$ 11,160 & \$ 18,900 & \$ 48,700 \\\hline \text { External failure costs } & 18,100 & 22,600 & 12,100 & \$ 2,800 \\\hline \text { Internal failure costs } & 16,400 & 21,900 & 14,300 & \$ 2,600 \\\hline \text { Prevention costs } & 16,660 & 10,140 & 28,100 & 54,900 \\\hline \text { Total costs of quality } & \$ 69,800 & \$ 65,800 & \$ 73,400 & \$ 209,000 \\\hline\end{array}$
Evaluate the three divisions' programs by first computing the costs of conformance and the costs of nonconformance of each division. Also compute quality costs as a percentage of sales for each division. Identify the division that is developing the strongest quality program. Which division has been slowest to react to the management directive of TQM? Defend your answers. Round percentages to three places beyond the decimal point.

Question 79

The Mahola Company operates as three autonomous divisions. Each division has a general manager in charge of product development, production, and distribution. Management recently adopted total quality management and the divisions now track, record, and analyze their costs and nonfinancial measures of quality. All three divisions are competing in a worldwide, highly competitive marketplace. Sales and quality-related data for April are summarized below.
North Division East Division West Division
$\begin{array}{|l|c|c|c|}\hline &\text {North Division}& \text {East Division}& \text {West Division}\\\hline\\\hline \text { Annual sales } &\underline{\$12,000.000}&\underline{\$9,000.000}&\underline{\$14,000.000}\\\hline \text { Costs of quality. }\\\hline\text { Setup for testing }&\$73,000&\$111,000&\$190,300\\\hline\text { Quality audits } \$78,000&260,000&142,800\\\hline \text { Failure analysis } & 125,000 & 15,950 & 93,300 \\\hline \text { Quality trairing of employees } &145,500&180,000&280,700\\\hline \text { Scrap and rework }&259,000&10,800&167,200 \\\hline \text { Preventive maintenance } & 146,000 & 139,500 & 130,900 \\\hline \text { Warranty claims } & 391,250 & 95,100 & 321,200 \\\hline\text { Customer service }&153,500&227,850&182,800 \\\hline \text { Quality engineering }&\$344,500&418,500&428,400 \\\hline\text { Prochuct simulation and development } &41,000&178,000&170,900\\\hline \text { Losses caused by vendor scrap }84,000&18,250&89,500\\\hline \text { Returned goods } &591,250&172,050&476,000\\\hline \text { Total costs of quality }&\$2,532,000&\$1,827,000&\$2,674,000\\\hline\end{array}$ $\begin{array}{|l|l|l|l|l}\hline & \text { North Division } & \text { East Division } & \text { West division } \\\hline \text { Nonfinancial measures of quality. } & & & \\\hline \text { Defective parts per million } & 4,910 & 1,704 & 3,540 \\\hline \text { Returned order percentage } & 7.40 \% & 2.10 \% & 4.20 \% \\\hline \text { Customer complaints } & 50 & 16 & 30 \\\hline \text { Number of warranty claims } & 29 & 10 & 17 \\\hline\end{array}$ a. Prepare an analysis of the costs of quality of the three divisions. Categorize the costs as follows: costs of conformance with subsets of prevention costs and appraisal costs, and costs of nonconformance with subsets of internal failure costs and external failure costs. Compute the total costs for each category for each division.
b. Compute the percentage of sales of each cost-of-quality total for each division. Round percentages to two places beyond the decimal point.
c. Interpret the cost-of-quality data for each division. Is each division's product of high or low quality? Why? Are the divisions headed in the right direction to be globally competitive?
d. Evaluate the nonfinancial measures of quality in terms of customer satisfaction. Explain your answer.