Exam 17: The Management and Control of Quality

White Financial Services Corporation is engaged in mortgage origination and investment servicing activities with annual revenues of more than $90 million.Roberta White,CEO,recently has discovered that errors are costing the company over $800,000 per year.Jeremy Aiken,Vice President of Sales,dismisses the significance of the errors.Since the cost of errors is less than 1% of revenues,he believes the company should ignore the errors and concentrate instead on generating additional revenues.The consulting firm that made the discovery proposed to establish operating procedures for White that would build quality checks into operations.The interviewing,writing,and training activities associated with this project are expected to cost $450,000.Once the procedure is in place,the consultant believes,all errors will be eliminated.Jeremy argues that no system can be error-free and that the procedure is most likely to eliminate 80 percent of the errors.James White,Vice President of Customer Services,suggests that the company can hire 10 additional workers at an average salary of $30,000 (including fringe benefits)to double-check the work of people in sensitive areas. Required: What do you think White Financial Services Company should do? Support your answer with a logical analysis of the three alternatives (hire the consulting firm,hire additional workers,or do nothing about the errors and concentrate on additional revenues).

Inputs: Total quality cost = $5.00;target value,T = 0.5.(x - T)= 0.004;(x -T)² = 0.000016;k = total cost/(x - T)² = $312,500. 2.Calculations:

In a Cost of Quality (COQ)reporting framework,scrap costs because of quality failure would be classified as:

Which of the following statements about nonfinancial indicators of quality is not true?

Conformance to a quality specification expressed as a specified range around a target is:

Identify the appropriate cost-of-quality (COQ)category for each of the following items: (1)Engineering time spent to simplify production processes. (2)Engineering time spent on engineering change orders to reduce the number of component used in a current product. (3)Scrap resulting from substandard materials undetected by the receiving personnel. (4)Rework to correct inconsistency caused by machine variability. (5)Preventive maintenance on machinery. (6)Product inspections. (7)Air freight to replace a defective part discovered by a customer. (8)Long-distance call to a customer who has experienced a quality failure.

A common characteristic among control charts,histograms,Pareto diagrams,and cause-and-effect diagrams is that they are:

Which of the following nonfinancial performance indicators would be least applicable in a lean accounting system?

The term six sigma refers to:

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:

Pandra Manufacturing specifies the quality characteristic of one of its popular products to be 0.500 $\pm$ 0.020.An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $125 per unit.The customer service manager is of the opinion that the product is likely to fail during the warranty period when the quality characteristic differs from the target by more than 0.020 in either direction. Required: To gain a better understanding of the impact of quality variation,you,the product manager,would like to know the following values in a Taguchi loss function,L(x). (1)Cost coefficient,k. (2)Estimated losses,L(x),when the actual quality characteristic,x,is 0.505. (3)Estimated losses,L(x),when the actual quality characteristic,x,is 0.510. (4)The amount of change in the estimated losses when the deviation from the quality characteristic doubled.

Euromold specializes in manufacturing molded plastic panel to be fitted on car doors.The blueprint specification for the thickness of a high-demand model calls for 0.20625 $\pm$ 0.00275 inch.It costs $180 to scrap a part that is outside of the specification.The thickness measure for the unit just completed is 0.20823. Required: (1)Calculate the value of k. (2)Calculate the estimated amount of loss for the unit in question,L(x).

All of the following are examples of internal nonfinancial quality indicators except:

Which of the following is not an expected result of improved quality of operations?

In a Cost of Quality (COQ)framework,warranty costs are considered:

Conformance to a quality standard that requires all products or services to meet exactly the target value with no variation allowed is:

Pandra Manufacturing specifies the quality characteristic of one of its popular products to be 0.500" $\pm$ 0.020.An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $125 per unit.The customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic exceeds on either side of the target of 0.500,by the tolerance of 0.020.What is the cost coefficient,k,in the Taguchi loss function for this company?

One of the key elements of lean accounting is the use of the value stream income statement.Which of the following is not a characteristic of value stream income?

Because of the need to improve its competitive standing,the XYZ Company has embraced a JIT production philosophy.To facilitate the transition to JIT,the company is contemplating a change in its production layout.You,as the management accountant for the company,have recently been asked to prepare an analysis of relevant costs and benefits associated with the proposed change in plant layout.After consulting with relevant managers within the company,you have come up with the following pieces of information: (a)Estimated cost to move/reinstall existing machinery and equipment = $100,000. (b)Estimated increase in sales = 20% (to $1,200,000).(This increase is based on an assumed decrease in production cycle time under the new plan layout.Past experience shows an average contribution margin of 31% of sales revenue. ) (c)Inventory-related costs are predicted to decrease by 25%.Currently,the company holds an average inventory of approximately $200,000.You estimate that inventory-holding costs amount to 15% (on an annual basis). Required: 1.Should the company implement the proposed change in plant layout? Show calculations to support your answer. 2.What other considerations might be made before a decision regarding the change in factory layout is made?

A proper role for accounting in terms of managing and controlling quality is all of the following except: