Exam 19: Balanced Scorecard: Quality and Time

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 2018,it has budgeted $1,000,000 for prevention costs and $900,000 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 2018 budget for a new method of testing products.If management decides to implement the new method,$1.50 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 2017? 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)?

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.

Which of the following is a chart which indicates how frequently each type of defect occurs?

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.

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 560 small tools per day with an average of 430.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 average waiting time,in minutes? (Round the final answer to the first decimal place. )

One of the ways to increase capacity is to invest in new equipment,such as flexible manufacturing systems that can be programmed to switch quickly from producing one product to producing another.

Quality is defined as the total features and characteristics of a product or a service made or performed according to specifications to satisfy customers at the time of purchase and during use.

LaCrosse Products has a budget of $910,000 in 2017 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $80,800 in variable costs.The new method will require $40,500 in training costs and $103,000 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 151,000 units. Appraisal costs for the year are budgeted at $606,000.The new prevention procedures will save appraisal costs of $50,400.Internal failure costs average $15 per failed unit of finished goods.The internal failure rate is expected to be 2% 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 $50 per failed unit.The company's average external failures average 2% of units sold.The new proposal will reduce this rate by 50%.Assume all units produced are sold and there are no ending inventories. How much do external failure costs change if all changes are as anticipated with the new prevention procedures? Assume all units produced are sold and there are no ending inventories.

Speedy Dress Manufacturing has two workstations,cutting and finishing.The cutting station is limited by the speed of operating the cutting machine.Finishing is limited by the speed of the workers.Finishing normally waits for work from cutting.Each department works an eight-hour day.If cutting begins work two hours earlier than finishing each day,the two departments generally finish their work at about the same time.Not only does this eliminate the bottleneck,but also it increases finished units produced each day by 210 units.All units produced can be sold even though the change increases inventory stock by 15% from 430 units.The cost of operating the cutting department two more hours each day is $1430.The contribution margin of the finished products is $12 each.Inventory carrying costs are $0.50 per unit per day. What is the change in the daily contribution margin if the change is made?

In successful quality programs,companies decrease costs of quality and,in particular,internal and external failure costs as a percentage of revenues.