Question 1

In the value chain model, efficiency, cost, and cycle time are related to _____.
A) management processes
B) inputs
C) value-creation processes
D) outputs and outcomes

Accepted Answer

Efficiency, cost, and cycle time are directly related to the value-creation processes within the value chain model. The value-creation processes are the core activities of a business that create value for the customer and ultimately generate revenue for the company. Improving efficiency, reducing costs, and minimizing cycle time within these processes can lead to increased profitability and competitiveness.

Question 2

In the Service-Profit Chain model, which of the following is viewed as an external performance?
A) Customer satisfaction
B) Volume flexibility
C) Cycle time
D) Employee productivity

Accepted Answer

Customer satisfaction is viewed as an external performance in the Service-Profit Chain model because it is an outcome that results from the quality of the service provided by a company. It reflects how well the company meets the needs and expectations of its customers, which in turn leads to customer loyalty and repeat business. Employee productivity, cycle time, and volume flexibility are internal performance measures that can also impact customer satisfaction, but they are not viewed as external performance measures in this model.

Question 3

A manufacturer of business copier workstations has a 75 percent customer retention rate. Their accounting department estimates the incremental contribution to profit and overhead as 40 percent. Customers purchase the workstations every three years at an average cost of $1,500. The average value of a loyal customer is _____.
A) more than $200 and less than or equal to $300
B) more than $300 and less than or equal to $400
C) more than $400 and less than or equal to $500
D) more than $500

Accepted Answer

The average value of a loyal customer can be calculated using the formula for the lifetime value of a customer (LTV), which takes into account the retention rate, profit margin, and purchase frequency. Given a 75% retention rate, a 40% profit margin, and a purchase cycle of every three years at $1,500, the LTV exceeds $500 when considering the long-term value of repeat purchases over many years.

Question 4

_____ provide the basis for decisions at the level at which they are applied-the value chain, organization, process, department, workstation, job, and service encounter.
A) Contribution margins
B) Actionable measures
C) Smoothing factors
D) Standard deviations

Accepted Answer

Actionable measures provide a basis for decisions at the level at which they are applied. They are specific and relevant to the area where they are used, such as the value chain, organization, process, department, workstation, job, and service encounter. Contribution margins are a financial calculation used to determine the difference between revenue and variable costs, while standard deviations are a statistical measure of the amount of variation or dispersion in a set of data. Smoothing factors are used in forecasting to reduce the impact of random fluctuations in data.

Question 5

_____ have the primary responsibility to design and manage the processes and associated resources that create value for customers.
A) Operations managers
B) Testers
C) First-line supervisors
D) End users

Accepted Answer

Operations managers are responsible for designing and managing the processes and resources that create value for customers. This includes the planning, coordination, and execution of activities such as production, distribution, and service delivery. Testers may be involved in ensuring quality control, first-line supervisors may oversee day-to-day operations, and end users consume the value created by the operations but do not have primary responsibility for designing and managing them. Therefore, A) Operations managers is the best choice.

Question 6

A retail store sells a popular cosmetic called Rochelle and the store manager is given $100,000 by the corporate office to improve store performance any way she thinks best. The "base case" information is a price of $30 per bottle, a contribution margin of 0.50, a customer defection rate of 17%, and a repurchase frequency of 3 times a year. If these improvement funds could be used to either (a) increase the contribution margin to 0.58 or (b) reduce the customer defection rate to 15% or (c) increase the repurchase frequency to 4 times per year, what is the best way to spend these improvement funds by answering the next two questions? (Assume all other variables remain at the base case level for each of the three improvement options.) VLC = P*CM*RF*BLC
You may want to use the table below to help organize your computations and answer.
 $\begin{array}{|c|c|c|c|c|}\hline \begin{array}{c}
\text { Price \& } \
\text { Improvement } \
\text { Option }
\end{array} & \begin{array}{c}
\text { Contribution } \
\text { Margin }
\end{array} & \begin{array}{c}
\text { Repurchase } \
\text { Frequency }
\end{array} & \text { Defection Rate }&\text { VLV in } \$ \
\hline \$ 30 \text { (base case) } & 0.50 & 3 & 17 \%& \
\hline \$ 30 \text { (option a) } & & & \
\hline \$ 30 \text { (option b) } & & & \
\hline \$ 30 \text { (option c) } & & &\\hline
\end{array}$
-The value of a loyal customer (VLC) for improvement option (a) is _____.
A) less than or equal to $100
B) more than $100 and less than or equal to $200
C) more than $200 and less than or equal to $300
D) more than $300 and less than or equal to $400

Accepted Answer

The answer of A retail store sells a popular cosmetic...

Question 7

Which of the following performance perspectives in the balanced scorecard model measures the ultimate value that a business provides to its shareholders?
A) Financial perspective
B) Internal perspective
C) Learning perspective
D) External perspective

Accepted Answer

The financial perspective in the balanced scorecard model focuses on measuring financial performance and outcomes, including revenue growth, profitability, and return on investment. It is the perspective that ultimately measures the value provided to shareholders.

Question 8

A retail store sells a popular cosmetic called Devine and the store manager is given $300,000 by the corporate office to improve store performance any way she thinks best. The "base case" information is a price of $30 per bottle, a contribution margin of 0.50, a customer defection rate of 20%, and a repurchase frequency of 3 times a year. If these improvement funds could be used to either (a) increase the contribution margin to 0.60 or (b) reduce the customer defection rate to 12% or (c) increase the repurchase frequency to 4 times per year, what is the best way to spend these improvement funds? (Assume all other variables remain at the base case level for each of the three improvement options.) VLC = P*CM*RF*BLC
You may want to use the worksheet below to help organize your computations and answer of the question(s).
 $\begin{array}{|c|c|c|c|c|c|}\hline \begin{array}{c}
\text { Improvement } \
\text { Option }
\end{array} & \text { Price } & \begin{array}{c}
\text { Contribution } \
\text { Margin }
\end{array} & \begin{array}{l}
\text { Repurchase } \
\text { Frequency }
\end{array} & \begin{array}{l}
\text { Defection } \
\text { Rate }
\end{array} &\text { VLC in } \$\
\hline \text { Base case } & \$ 30 & 0.50 & 3 & 20 \%& \
\hline(\mathrm{a}) & \$ 30 & & & \
\hline \text { (b) } & \$ 30 & & & \
\hline \text { (c) } & \$ 30 & & & \
\hline
\end{array}$
-The value of a loyal customer (VLC) for improvement option (a) is _____.
A) more than $100 and less than or equal to $150
B) more than $150 and less than or equal to $200
C) more than $200 and less than or equal to $250
D) more than $250

Accepted Answer

The answer of A retail store sells a popular cosmetic...

Question 9

A coffee shop's average transaction price is $4 and its contribution margin is 60 percent. A typical customer makes a purchase once a week or 52 times per year, and the management estimates the value of the loyal customer over the buying life cycle as $720. The customer defection rate is _____.
A) less than or equal to 0.10
B) more than 0.10 and less than or equal to 0.15
C) more than 0.15 and less than or equal to 0.20
D) more than 0.20 and less than or equal to 0.25

Accepted Answer

The formula for calculating customer lifetime value (CLV) is:
CLV = average transaction value x contribution margin x  (1 / customer defection rate)

Using the given values, we can solve for customer defection rate:

$720 = $4 x 0.6 x (1 / customer defection rate)
customer defection rate = 0.2083

Rounding to the nearest hundredth, the customer defection rate is about 0.21 or 21%.

Therefore, the best choice is C, more than 0.15 and less than or equal to 0.20.

Question 10

Which of the following performance perspectives in the balanced scorecard model includes measures like productivity, flow time, and asset utilization?
A) Financial perspective
B) Customer perspective
C) Innovation and learning perspective
D) Internal perspective

Accepted Answer

The internal perspective in the balanced scorecard model focuses on internal business processes and includes measures like productivity, flow time, and asset utilization. The financial perspective is focused on financial results, the customer perspective is focused on customer satisfaction and loyalty, and the innovation and learning perspective is focused on the organization's ability to innovate and learn to improve performance.

Question 11

A retail store sells a popular cosmetic called Devine and the store manager is given $300,000 by the corporate office to improve store performance any way she thinks best. The "base case" information is a price of $30 per bottle, a contribution margin of 0.50, a customer defection rate of 20%, and a repurchase frequency of 3 times a year. If these improvement funds could be used to either (a) increase the contribution margin to 0.60 or (b) reduce the customer defection rate to 12% or (c) increase the repurchase frequency to 4 times per year, what is the best way to spend these improvement funds? (Assume all other variables remain at the base case level for each of the three improvement options.) VLC = P*CM*RF*BLC
You may want to use the worksheet below to help organize your computations and answer of the question(s).
 $\begin{array}{|c|c|c|c|c|c|}\hline \begin{array}{c}
\text { Improvement } \
\text { Option }
\end{array} & \text { Price } & \begin{array}{c}
\text { Contribution } \
\text { Margin }
\end{array} & \begin{array}{l}
\text { Repurchase } \
\text { Frequency }
\end{array} & \begin{array}{l}
\text { Defection } \
\text { Rate }
\end{array} &\text { VLC in } \$\
\hline \text { Base case } & \$ 30 & 0.50 & 3 & 20 \%& \
\hline(\mathrm{a}) & \$ 30 & & & \
\hline \text { (b) } & \$ 30 & & & \
\hline \text { (c) } & \$ 30 & & & \
\hline
\end{array}$
-Which of the following is the best way to use the $300,000 in improvement funds?
A) Do nothing (stay with base case).
B) Improve option (a).
C) Improve option (b).
D) Improve option (c).

Accepted Answer

Improving option (b) reduces the customer defection rate to 12%, which increases the customer lifetime value (VLC) significantly. The VLC formula is P*CM*RF*BLC, where BLC is the inverse of the defection rate (1/defection rate). Reducing the defection rate has a larger impact on VLC compared to increasing the contribution margin or repurchase frequency.

Question 12

A coffee shop's average transaction price is $4, and the contribution margin is 60 percent. A typical customer makes a purchase once a week or 52 weeks per year, and the management estimates the value of the loyal customer over the buying life cycle as $520. The customer defection rate is _____.
A) less than or equal to 0.10
B) more than 0.10 and less than or equal to 0.15
C) more than 0.15 and less than or equal to 0.20
D) more than 0.20 and less than or equal to 0.25

Accepted Answer

The answer of A coffee shop's average transaction price is...

Question 13

Which of the following categories in Baldrige model of organizational performance addresses how an organization designs, manages, and improves its work systems to deliver customer value?
A) Leadership
B) Workforce focus
C) Customer focus
D) Operations focus

Accepted Answer

The category that addresses how an organization designs, manages, and improves its work systems to deliver customer value is Operations focus. The other categories are Leadership, Workforce focus, and Customer focus which address other aspects of organizational performance.

Question 14

A guest at Raphael's Four-Star Italian Restaurant generally spends $150 on a meal. Most of Raphael's customers are from nearby localities and eat at the restaurant twice a month. If the restaurant's margin is 60 percent, and a loyal customer is estimated to be worth $4,000, determine the average defection rate.
A) Less than or equal to 0.15
B) More than 0.15 and less than or equal to 0.20
C) More than 0.20 and less than or equal to 0.25
D) More than 0.25

Accepted Answer

The answer of A guest at Raphael's Four-Star Italian Restaurant...

Question 15

Identify the performance perspective in the balanced scorecard model that includes measures like intellectual and research assets, employee satisfaction, and skills development.
A) Financial perspective
B) Customer perspective
C) Innovation and Learning perspective
D) Internal perspective

Accepted Answer

The performance perspective in the balanced scorecard model that includes measures like intellectual and research assets, employee satisfaction, and skills development is the Innovation and Learning Perspective. This perspective focuses on the continuous improvement and development of an organization's employees, processes, and technology to support sustainable growth and innovation. It plays a vital role in achieving business objectives and maintaining a competitive advantage in the market.

Question 16

Which of the following categories of the Malcolm Baldrige National Quality Award Program examines how an organization fulfills its ethical, legal, and societal responsibilities, and supports its key communities?
A) Leadership
B) Strategic planning
C) Customer focus
D) Results

Accepted Answer

The category that examines how an organization fulfills its ethical, legal, and societal responsibilities, and supports its key communities is the Leadership category of the Malcolm Baldrige National Quality Award Program.

Question 17

A retail store sells a popular cosmetic called Rochelle and the store manager is given $100,000 by the corporate office to improve store performance any way she thinks best. The "base case" information is a price of $30 per bottle, a contribution margin of 0.50, a customer defection rate of 17%, and a repurchase frequency of 3 times a year. If these improvement funds could be used to either (a) increase the contribution margin to 0.58 or (b) reduce the customer defection rate to 15% or (c) increase the repurchase frequency to 4 times per year, what is the best way to spend these improvement funds by answering the next two questions? (Assume all other variables remain at the base case level for each of the three improvement options.) VLC = P*CM*RF*BLC
You may want to use the table below to help organize your computations and answer.
 $\begin{array}{|c|c|c|c|c|}\hline \begin{array}{c}
\text { Price \& } \
\text { Improvement } \
\text { Option }
\end{array} & \begin{array}{c}
\text { Contribution } \
\text { Margin }
\end{array} & \begin{array}{c}
\text { Repurchase } \
\text { Frequency }
\end{array} & \text { Defection Rate }&\text { VLV in } \$ \
\hline \$ 30 \text { (base case) } & 0.50 & 3 & 17 \%& \
\hline \$ 30 \text { (option a) } & & & \
\hline \$ 30 \text { (option b) } & & & \
\hline \$ 30 \text { (option c) } & & &\\hline
\end{array}$
-Which of the following is the best way to use the $100,000 in improvement funds?
A) Do nothing (stay with base case).
B) Improve option (a)-increase the contribution margin to 0.58.
C) Improve option (b)-reduce the defection rate to 15%.
D) Improve option (c)-increase the repurchase frequency to 4.
E) Two improvement options have equal VLC dollars, so split the funds between the two tied improvement options.

Accepted Answer

To determine the best use of the $100,000 improvement funds, we calculate the Value of a Loyal Customer (VLC) for each option using the formula VLC = P*CM*RF*BLC, where P is the price, CM is the contribution margin, RF is the repurchase frequency, and BLC is the base loyal customer count (which can be inferred from the defection rate). The base case VLC is not directly calculable without the BLC, but we can compare the relative improvements of each option.For option (a), increasing the contribution margin to 0.58 would increase VLC because both P and RF remain constant, and a higher CM directly increases VLC.For option (b), reducing the defection rate to 15% would increase the BLC, indirectly increasing VLC, but this effect depends on the initial BLC and the scale of improvement might not be as direct or impactful as affecting CM or RF.For option (c), increasing the repurchase frequency to 4 times per year directly increases VLC, as it increases the number of times a loyal customer purchases the product within a year.Without exact BLC values, we prioritize direct impacts on VLC through CM and RF. Between increasing CM and RF, increasing RF (option c) typically has a more substantial impact because it multiplies the entire value of a customer's contribution over more transactions. Therefore, option (c) is the best way to use the funds for improving store performance.

Question 18

Of the four models of organizational performance, which two focus on the "big picture" of organizational performance rather than on the operational-level framework?
A) Baldrige Performance Excellence framework and the value chain model
B) Balanced scorecard and the Service-Profit Chain
C) Baldrige Performance Excellence framework and the balanced scorecard
D) The value chain model and the Service-Profit Chain

Accepted Answer

The Baldrige Performance Excellence framework and the balanced scorecard both focus on the overall performance of the organization, rather than the operational-level framework. The value chain model and the Service-Profit Chain are both operational-level frameworks.

Question 19

A family rents videos from a local video store. On an average, they spend $80 a month. The store's contribution margin is 45 percent and the average customer defection is 40 percent. Determine the value of a loyal customer.
A) Less than or equal to $500
B) More than $500 and less than or equal to $1,000
C) More than $1,000 and less than or equal to $1,500
D) More than $1,500 and less than or equal to $2,000

Accepted Answer

The value of a loyal customer can be calculated using the formula: Value = (Average Monthly Spend * Contribution Margin) / Defection Rate. Plugging in the values: ($80 * 0.45) / 0.40 = $90. This suggests the value is more than $1,000 and less than or equal to $1,500.

Question 20

A computer manufacturer currently has a 15 percent customer defection rate. Their accounting department estimates the incremental contribution to profit and overhead as 30 percent. Customers purchase computers every four years at an average cost of $1,200. In an effort to reduce the defection rate, the company is improving both the quality of its computers and its post-sale service. Determine the value of a loyal customer if the defection rate drops to 5 percent.
A) Less than or equal to $500
B) More than $500 and less than or equal to $1,000
C) More than $1,000 and less than or equal to $1,500
D) More than $1,500 and less than or equal to $2,000

Accepted Answer

The value of a loyal customer can be calculated using the formula: Value = (Profit per purchase) / (Defection rate). With a 5% defection rate, the value is ($1,200 * 30%) / 0.05 = $7,200, which is more than $1,500 and less than or equal to $2,000.

Quiz 3: Measuring Performance in Operations

In the value chain model, efficiency, cost, and cycle time are related to _____.

In the Service-Profit Chain model, which of the following is viewed as an external performance?

_____ provide the basis for decisions at the level at which they are applied-the value chain, organization, process, department, workstation, job, and service encounter.

_____ have the primary responsibility to design and manage the processes and associated resources that create value for customers.

Which of the following performance perspectives in the balanced scorecard model measures the ultimate value that a business provides to its shareholders?

A coffee shop's average transaction price is $4 and its contribution margin is 60 percent. A typical customer makes a purchase once a week or 52 times per year, and the management estimates the value of the loyal customer over the buying life cycle as $720. The customer defection rate is _____.

Which of the following performance perspectives in the balanced scorecard model includes measures like productivity, flow time, and asset utilization?

A coffee shop's average transaction price is $4, and the contribution margin is 60 percent. A typical customer makes a purchase once a week or 52 weeks per year, and the management estimates the value of the loyal customer over the buying life cycle as $520. The customer defection rate is _____.

Which of the following categories in Baldrige model of organizational performance addresses how an organization designs, manages, and improves its work systems to deliver customer value?

Identify the performance perspective in the balanced scorecard model that includes measures like intellectual and research assets, employee satisfaction, and skills development.

Which of the following categories of the Malcolm Baldrige National Quality Award Program examines how an organization fulfills its ethical, legal, and societal responsibilities, and supports its key communities?

Of the four models of organizational performance, which two focus on the "big picture" of organizational performance rather than on the operational-level framework?

A family rents videos from a local video store. On an average, they spend $80 a month. The store's contribution margin is 45 percent and the average customer defection is 40 percent. Determine the value of a loyal customer.