Exam 17: The Management and Control of Quality

Turbo-Oven, Inc. is considering a move to cellular manufacturing. Management of the company has requested from you, as the management accountant, to supply it with information that will help inform the decision as to whether or not such a move is desirable. Your research into past performance of the company as well as extensive discussion with the manager of operations and the sales manager produced the following information. Required: 1. In terms of the above information, provide for management of the company a rationale as to why you included each of the following items: a. increase in total sales revenue b. decrease in direct materials cost as a percentage of sales c. decrease in holdings of Work-in-Process (WIP) inventory 2. Provide an estimate of each of the following financial effects associated with the proposed move to a cellular manufacturing layout: a. change in total (out-of-pocket) manufacturing costs b. reduction in WIP inventory holdings c. net financial effect of the change, per year 3. In general, what types of costs would need to be incurred in order to reap the benefits outlined above in Requirement 2?

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

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

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

Which of the following items represents a quadratic loss function associated with deviation of actual quality from target quality?

The Old Army Jean Company has been very proud of the quality of its products. The company has won industry awards for high quality and trend-setting styles in the last five years. For the last two years, however, both sales volume and market share have been declining. At the latest executive managers' meeting, everyone was blaming everyone else for the decline. Both production and design managers suggested that sales relationships were the cause of most of the problems. Required: As the CEO, how would you determine that quality of sales relationships, not product design or product quality, is the cause of the financial decline the company is experiencing?

A ______________ shows trends in a quality measure over time.

Listed below are 6 items concerned with quality. Required: Classify each of these items into its appropriate Cost-of-Quality (COQ) category: Prevention Cost; Appraisal Cost; Internal Failure Cost; or External Failure Cost. 1. Establish a 24-hour hot line for customers to report quality failures. 2. Establish a quality-inspection program. 3. Re-design parts and components to simplify manufacturing of the product. 4. Hire additional field service people to provide better services. 5. Extend the warranty period for products from 90 days to one year. 6. Train employees on the importance of zero defects.

Cari and Jeremy 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 the management and control of quality. Required: 1. Identify and define each of the four categories in a typical Cost-of-Quality (COQ) reporting system. 2. For the identified business (bed and breakfast) provide three examples of costs within each of the four COQ categories.

In an effort to improve its competitive position, J. J. Borden Company recently introduced Just-in-Time (JIT) production techniques. Its management accountant assembled the following data regarding the recent change: Inventory financing cost is estimated as 15% per year. Required: 1. Estimate the net financial benefit (expressed in terms of operating income) that the company realized from the switch to JIT manufacturing. 2. List four (4) nonfinancial benefits the company might expect as a result to its move to JIT. 3. What are the primary expected costs of implementing a JIT system?

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

Provide a definition of the term "quality," as used in Chapter 17 of the text. Into what two categories (or dimensions) can total quality be divided? Define each of these two dimensions. How, conceptually, can cost management contribute to the management of each of these two dimensions of quality?

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

Pandra Manufacturing obtained the following measurements on the quality characteristic of the product from its operations in the last few months: The company has determined that no customer will accept any unit that deviates more than 0.04 from the target quality characteristic, T, of 0.5. The company estimated that each rejection would cost the company $500. Required: 1. Calculate the cost coefficient, k, for the Taguchi Quality Loss Function based on the above information. 2. Determine the estimated amount of quality loss, L(x), for each of the observed values of the quality characteristic, x, presented in the above table. 3. Based on the data you generate in response to Requirement 1 above, determine the expected loss given the probabilities presented in the above table. Round your answer to three decimal places. 4. Use the formula EL(x) = k (σ² + D²) to verify your answer in (2), where σ² = Σ (x - )f(x), and D = the deviation of the mean value of the quality characteristic from the target value = ( - T).

In a lean accounting system, costs are assigned to products by:

List three examples of quality improvement in a manufacturing facility that would lead to increased sales productivity.

Slumberger Manufacturing Co., Inc. is considering a change in its manufacturing layout (e.g., to a flexible manufacturing system [FMS] or cellular manufacturing), but it is unsure of the net benefits it should expect in conjunction with such a move. Company management has asked you to estimate both financial and nonfinancial effects of the proposed move. In this regard, you have collected the following information: Required: 1. As a result of the change, inventory carrying costs are expected to change by what amount? 2. If the plant layout change is made, what is the projected amount for incremental manufacturing cost for the year, in terms of out-of-pocket costs? 3. What are the projected incremental financial results(per year) associated with this change? 4. What are some plausible nonfinancial performance metrics that the company might monitor after implementing the proposed change?

The quality cost of prevention:

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

The term Six Sigma refers to: