Exam 19: Balanced Scorecard: Quality and Time

Warranty costs is an example of external failure costs.

Which of the following is true of a bottleneck?

Which of the following is the mathematical expression for calculating manufacturing cycle efficiency(MCE)?

Komerica Corp is committed to its quality program.It works with all areas of the company to establish sound quality programs within reasonable budget guidelines.For 2015,it has budgeted $1,000,000 for prevention costs and $800,000 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 2015 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 150,000 tests.No additional savings are expected past the 150,000 level.The new method involves $95,000 in training costs and $65,000 in yearly testing supplies. Traditionally,5% 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 2015? b.How much do internal failure costs change,assuming 500,000 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)?

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

Answer the following questions using the information below: Cysco Corp has a budget of $1,200,000 in 2015 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $100,000 in variable costs. The new method will require $50,000 in training costs and $140,000 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 200,000 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 $30 per failed unit of finished goods. The internal failure rate is expected to be 5% 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 $50 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?

Norton's Convenience store has a variable demand.The daily demand ranges from 270 to 330 customers a day who average purchasing 5 items each.The average daily demand is 300 customers.The convenience store currently operates 12 hours a day.Each order takes approximately 2 minutes. Required: a.What is the average customer waiting time,in minutes? b.What is the cycle time for an order? c.Norton has decided that the waiting time is too long and has increased the hours the store is open to 15 hours.What is the waiting time now?

Answer the following questions using the information below: Strykerz Corp expects to spend $800,000 in 2015 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 $60,000 in fixed appraisal costs and variable costs of $0.50 per unit of finished product. The new method involves $140,000 in training costs and an additional $150,000 in annual equipment rental. Internal failure costs average $160 per failed unit of finished goods. During 2014, 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 2015,assuming the new receiving method is implemented and that 800,000 material units are received?

Total costs of quality help managers aggregate costs to evaluate the tradeoffs of incurring prevention costs and appraisal costs to eliminate internal and external failure costs.

The costs of quality ________.

Which of the following true of nonfinancial measures of quality?

Increasing the capacity of a bottleneck resource increases manufacturing cycle times and delays.

Answer the following questions using the information below: Ventaz Corp has a variable demand. Historically, its demand has ranged from 30 to 50 windows per day with an average of 40. Alex works eight hours a day, five days a week. Each order is one window and each window takes 11 minutes. -What is the average waiting time in minutes?

Manufacturing cycle times affect both revenues and costs.

Answer the following questions using the information below: LaCrosse Products has a budget of $900,000 in 2015 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?

Design engineering is an example of ________.

Ply Corp 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 1. Plant utilities in the inspection area m. Reentering data because of keypuncherrors ___Prevention costs ___Appraisal costs ___Internal failure costs ___External failure costs

Longer manufacturing cycle times increase the inventory carrying costs and decrease revenues.

Answer the following questions using the information below: The tool crib at a large manufacturing company is responsible for providing tools to the factory workers on demand. The tool crib has a variable demand. Historically, its demand has ranged from 300 to 500 small tools per day with an average of 400. Diane, the tool crib attendant, works eight hours a day, five days a week. Each order is for one small tool and each small tool takes Diane 1 minute to retrieve from the bins. -What is the cycle time for an order?

Brix,Inc.,prepares frozen food for fast-food restaurants.It has two workstations,cooking and assembly.The cooking station is limited by the cooking time of the food.Assembly is limited by the speed of the workers.Assembly normally waits on food from cooking.Because the demand has increased in recent months to 2,800 dozen units,management is considering adding another cooking station or else having the cooks start to work earlier.The monthly cost of operating the cooking station one more hour each day is $2,400.The cost of adding another cooking station would add an average of $10 per hour.The current operating hours total eight hours a day,22 days a month.The contribution margin of the finished products is currently $8 per dozen.Inventory carrying costs average $2.00 per dozen per month.Either the extra hour or the new cooking station would increase production by 20 dozen a day,with a long-run increase of 80 dozen units in finished goods inventory to 280 dozen. Required: a.What is the total production per month if the change is made? b.What is the increase in the expected monthly product contribution for each of the possible changes? Assume long-run production equals sales.