Deck 10: Cost Management Tools

Question 1

Following a strategy of product differentiation, Janzen Inc. makes a high-end product entitled "40H.". Janzen Inc. presents the following data for the years 2011 and 2012: $\begin{array} { l r r } & \mathbf { 2 0 1 1 } & \mathbf { 2 0 1 2 } \\\text { Units of } 40 \mathrm { H } \text { started } & \$ 21,000 & \$ 22,000 \\\text { Selling price } & \$ 300 & \$ 320 \\\text { Direct materials cost per square foot } & \$ 50,000 & \$ 51,500 \\\text { Direct materials square feet } & 30 & 32 \\\text { Manufacturing capacity for } 40 \mathrm { H } \text { (units) } & 30,000 & 30,000 \\\text { Total conversion costs } & \$ 1,500,000 & \$ 1,600,000 \\\text { Conversion costs per unit of capacity } & \$ 30 & \$ 34 \\\text { Selling and customer service capacity (number of customers) } & 70 & 68 \\\text { Total selling and customer service costs } & \$ 460,000 & \$ 462,500 \\\text { Cost per customer of selling and customer service capacity } & \$ 7,000 & \$ 7,250\end{array}$ Janzen Inc. produces no defective units but it wants to reduce the direct materials usage per unit of 40H in 2012. Manufacturing conversion costs in each year depend upon production capacity defined in terms of the number of 40H units that can be produced. Selling and customer-service costs depend upon the number of customers that the customer and service functions are designed to support. Janzen Inc. had 55 customers in 2011 and 62 customers in 2012. The industry market for 40H units increased by 6% from 2011 to 2012. Which of the following is a measure of the financial perspective?

A)Re-engineering process.
B)Market share in the 40H market.
C)Order delivery time.
D)Improving manufacturing processes.
E)Operating income growth from charging higher profit margins for 40H.

Answer 1

Operating income growth from charging higher profit margins for 40H.

Question 2

Lead indicators of performance in a balance scorecard are important because:

A)they guide future management actions.
B)they measure the financial outcomes of earlier management decisions.
C)they serve as a basis for motivating managers now in order to produce desirable results in the future.
D)they confirm key financial measures such as the return on assets ratio.
E)they have no impact on future management actions.

Answer 2

C

Question 3

Following a strategy of product differentiation, Rumsen Tools Corp. makes a hand sander sold in hardware stores. Rumsen presents the following data for the years 2011 and 2012: $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 1 } & \mathbf { 2 0 1 2 } \\\hline \text { Units started } & \$ 11,000 & \$ 11,500 \\\hline \text { Selling price } & \$ 200 & \$ 210 \\\hline \text { Direct materials cost per square foot } & \$ 40,000 & \$ 40,750 \\\hline \text { Direct materials square feet } & 7 & 10 \\\hline \text { Manufacturing capacity (units) } & 13,500 & 13,500 \\\hline \text { Total conversion costs } & \$ 3,500,000 & \$ 377,500 \\\hline \text { Conversion costs per unit of capacity } & \$ 30 & \$ 32 \\\hline \text { Selling and customer service capacity (mumber of customers) } & 20 & 19 \\\hline \text { Total selling and customer service costs } & \$ 80,000 & \$ 80,625 \\\hline \text { Cost per customer of selling and customer service capacity } & \$ 4,000 & \$ 4,125 \\\hline\end{array}$ Rumsen produces no defective units but it wants to reduce the direct materials usage per hand sanderin 2012. Manufacturing conversion costs in each year depend upon production capacity defined in terms of the number of units that can be produced. Selling and customer-service costs depend upon the number of customers that the customer and service functions are designed to support. Rumsen had 33 customers in 2011 and 35 customers in 2011. The industry market size for hand sanders had increased by 7% from 2011 to 2012. Which of the following is a measure of the learning and growth perspective?

A)Operating income growth from charging higher profit margins for hand sanders.
B)Market share in the hand sander market.
C)Order delivery time.
D)Improving manufacturing processes.
E)Increased customer satisfaction.

Answer 3

Improving manufacturing processes.

Question 4

To assess costs incurred with respect to raw materials and scrap, management may study:

A)the number of inventoried parts.
B)the number of warranty claims.
C)the number of defects found.
D)the quality of raw material.
E)the number of customer complaints.

Question 5

Which measure of performance does not typically relate to customer satisfaction?

A)Number of customer complaints received per month.
B)Average time to answer telephone calls from customers.
C)New services provided for the benefit of customers.
D)Revenue growth percentage.
E)Number of customer suggestions accepted.

Question 6

The manufacturing cycle efficiency for Olsen Inc. when the processing time is five hours and inspection, waiting, and move time are two hours each is (rounded):

A)0.40.
B)0.45.
C)0.83.
D)1.00.
E)2.50.

Question 7

Measures of performance relating to learning and growth include:

A)number of employee injuries reported.
B)market penetration in a coverage area.
C)percentage of manual transaction errors.
D)return on assets ratio.
E)percentage revenue growth.

Question 8

To assess product quality, management may study:

A)the manufacturing cycle efficiency ratio.
B)the delivery cycle time.
C)detailed maintenance records.
D)the number of defects found.
E)percentage of orders filled.

Question 9

Following a strategy of product differentiation, Rumsen Tools Corp. makes a hand sander sold in hardware stores. Rumsen presents the following data for the years 2011 and 2012: $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 1 } & \mathbf { 2 0 1 2 } \\\hline \text { Units started } & \$ 11,000 & \$ 11,500 \\\hline \text { Selling price } & \$ 200 & \$ 210 \\\hline \text { Direct materials cost per square foot } & \$ 40,000 & \$ 40,750 \\\hline \text { Direct materials square feet } & 7 & 10 \\\hline \text { Manufacturing capacity (units) } & 13,500 & 13,500 \\\hline \text { Total conversion costs } & \$ 3,500,000 & \$ 377,500 \\\hline \text { Conversion costs per unit of capacity } & \$ 30 & \$ 32 \\\hline \text { Selling and customer service capacity (mumber of customers) } & 20 & 19 \\\hline \text { Total selling and customer service costs } & \$ 80,000 & \$ 80,625 \\\hline \text { Cost per customer of selling and customer service capacity } & \$ 4,000 & \$ 4,125 \\\hline\end{array}$ Rumsen produces no defective units but it wants to reduce the direct materials usage per hand sanderin 2012. Manufacturing conversion costs in each year depend upon production capacity defined in terms of the number of units that can be produced. Selling and customer-service costs depend upon the number of customers that the customer and service functions are designed to support. Rumsen had 33 customers in 2011 and 35 customers in 2011. The industry market size for hand sanders had increased by 7% from 2011 to 2012. Which of the following is a measure of the financial perspective?

A)order delivery time.
B)re-engineering process.
C)operating income growth from charging higher profit margins for hand sanders.
D)improving manufacturing processes.
E)market share in the hand sander market.

Question 10

Following a strategy of product differentiation, Janzen Inc. makes a high-end product entitled "40H". Janzen Inc. presents the following data for the years 2011 and 2012: $\begin{array} { l r r } & \mathbf { 2 0 1 1 } & \mathbf { 2 0 1 2 } \\\text { Units of } 40 \mathrm { H } \text { started } & \$ 21,000 & \$ 22,000 \\\text { Selling price } & \$ 300 & \$ 320 \\\text { Direct materials cost per square foot } & \$ 50,000 & \$ 51,500 \\\text { Direct materials square feet } & 30 & 32 \\\text { Manufacturing capacity for } 40 \mathrm { H } \text { (units) } & 30,000 & 30,000 \\\text { Total conversion costs } & \$ 1,500,000 & \$ 1,600,000 \\\text { Conversion costs per unit of capacity } & \$ 30 & \$ 34 \\\text { Selling and customer service capacity (number of customers) } & 70 & 68 \\\text { Total selling and customer service costs } & \$ 460,000 & \$ 462,500 \\\text { Cost per customer of selling and customer service capacity } & \$ 7,000 & \$ 7,250\end{array}$ Janzen Inc. produces no defective units but it wants to reduce the direct materials usage per unit of 40H in 2012. Manufacturing conversion costs in each year depend upon production capacity defined in terms of the number of 40H units that can be produced. Selling and customer-service costs depend upon the number of customers that the customer and service functions are designed to support. Janzen Inc. had 55 customers in 2011 and 62 customers in 2012. The industry market for 40H units increased by 6% from 2011 to 2012. Which of the following is a measure of the learning and growth perspective?

A)Operating income growth from charging higher profit margins for 40H.
B)Market share in the 40H market.
C)Order delivery time.
D)Improving manufacturing processes.
E)Increased customer satisfaction.

Question 11

Measures of performance relating to internal operations and processes include:

A)percentage of customers retained.
B)number of employees in required training programs.
C)percentage of manual transaction errors.
D)return on assets ratio.
E)percentage revenue growth.

Question 12

Following a strategy of product differentiation, Rumsen Tools Corp. makes a hand sander sold in hardware stores. Rumsen presents the following data for the years 2011 and 2012: $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 1 } & \mathbf { 2 0 1 2 } \\\hline \text { Units started } & \$ 11,000 & \$ 11,500 \\\hline \text { Selling price } & \$ 200 & \$ 210 \\\hline \text { Direct materials cost per square foot } & \$ 40,000 & \$ 40,750 \\\hline \text { Direct materials square feet } & 7 & 10 \\\hline \text { Manufacturing capacity (units) } & 13,500 & 13,500 \\\hline \text { Total conversion costs } & \$ 3,500,000 & \$ 377,500 \\\hline \text { Conversion costs per unit of capacity } & \$ 30 & \$ 32 \\\hline \text { Selling and customer service capacity (mumber of customers) } & 20 & 19 \\\hline \text { Total selling and customer service costs } & \$ 80,000 & \$ 80,625 \\\hline \text { Cost per customer of selling and customer service capacity } & \$ 4,000 & \$ 4,125 \\\hline\end{array}$ Rumsen produces no defective units but it wants to reduce the direct materials usage per hand sanderin 2012. Manufacturing conversion costs in each year depend upon production capacity defined in terms of the number of units that can be produced. Selling and customer-service costs depend upon the number of customers that the customer and service functions are designed to support. Rumsen had 33 customers in 2011 and 35 customers in 2011. The industry market size for hand sanders had increased by 7% from 2011 to 2012. Which of the following is a measure of the internal business perspective?

A)operating income growth from charging higher profit margins for hand sanders.
B)market share in the hand sander market.
C)order delivery time.
D)improving manufacturing processes.
E)real-time feedback capacity.

Question 13

To improve its manufacturing cycle efficiency, companies should strive toward increasing __________ time as a percentage of processing time + inspection time + waiting time + move time. The blank is:

A)processing time
B)lead time
C)waiting time
D)move time
E)inspection time

Question 14

Following a strategy of product differentiation, Rumsen Tools Corp. makes a hand sander sold in hardware stores. Rumsen presents the following data for the years 2011 and 2012: $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 1 } & \mathbf { 2 0 1 2 } \\\hline \text { Units started } & \$ 11,000 & \$ 11,500 \\\hline \text { Selling price } & \$ 200 & \$ 210 \\\hline \text { Direct materials cost per square foot } & \$ 40,000 & \$ 40,750 \\\hline \text { Direct materials square feet } & 7 & 10 \\\hline \text { Manufacturing capacity (units) } & 13,500 & 13,500 \\\hline \text { Total conversion costs } & \$ 3,500,000 & \$ 377,500 \\\hline \text { Conversion costs per unit of capacity } & \$ 30 & \$ 32 \\\hline \text { Selling and customer service capacity (mumber of customers) } & 20 & 19 \\\hline \text { Total selling and customer service costs } & \$ 80,000 & \$ 80,625 \\\hline \text { Cost per customer of selling and customer service capacity } & \$ 4,000 & \$ 4,125 \\\hline\end{array}$ Rumsen produces no defective units but it wants to reduce the direct materials usage per hand sanderin 2012. Manufacturing conversion costs in each year depend upon production capacity defined in terms of the number of units that can be produced. Selling and customer-service costs depend upon the number of customers that the customer and service functions are designed to support. Rumsen had 33 customers in 2011 and 35 customers in 2011. The industry market size for hand sanders had increased by 7% from 2011 to 2012. Which of the following is a measure of the customer perspective?

A)Operating income growth from charging higher profit margins for Product X2GB.
B)Yield.
C)Order delivery time.
D)Improving manufacturing processes.
E)Market share in the Product X2GB market.

Question 15

To assess how customers perceive a company's products, management would likely not study:

A)the defective rate for the company's products
B)the cost of repairing returned products.
C)the number of products returned.
D)the number of warranty claims.
E)the number of customer complaints.

Question 16

Which of the following perspectives is normally absent in a balanced scorecard?

A)External operations and processes.
B)Learning and growth.
C)Internal operations and processes.
D)Customer satisfaction.
E)Financial performance.

Question 17

Which of the following business models considers financial, customer satisfaction, internal operations, and learning and growth in the evaluation of performance?

A)Deterministic simulation.
B)Balanced scorecard.
C)Payoff matrix.
D)Decision tree.
E)Chart of operating performance (COP).

Question 18

Winston Company manufactures hand held calculators in their Mississauga, Ontario plant. When calculating manufacturing cycle efficiency, which of the following activities does not result in value-added time for Winston?

A)Moving.
B)Processing.
C)Inspection.
D)Waiting.
E)Training.

Question 19

Following a strategy of product differentiation, Janzen Inc. makes a high-end product entitled "40H.". Janzen Inc. presents the following data for the years 2011 and 2012: $\begin{array} { l r r } & \mathbf { 2 0 1 1 } & \mathbf { 2 0 1 2 } \\\text { Units of } 40 \mathrm { H } \text { started } & \$ 21,000 & \$ 22,000 \\\text { Selling price } & \$ 300 & \$ 320 \\\text { Direct materials cost per square foot } & \$ 50,000 & \$ 51,500 \\\text { Direct materials square feet } & 30 & 32 \\\text { Manufacturing capacity for } 40 \mathrm { H } \text { (units) } & 30,000 & 30,000 \\\text { Total conversion costs } & \$ 1,500,000 & \$ 1,600,000 \\\text { Conversion costs per unit of capacity } & \$ 30 & \$ 34 \\\text { Selling and customer service capacity (number of customers) } & 70 & 68 \\\text { Total selling and customer service costs } & \$ 460,000 & \$ 462,500 \\\text { Cost per customer of selling and customer service capacity } & \$ 7,000 & \$ 7,250\end{array}$ Janzen Inc. produces no defective units but it wants to reduce the direct materials usage per unit of 40H in 2012. Manufacturing conversion costs in each year depend upon production capacity defined in terms of the number of 40H units that can be produced. Selling and customer-service costs depend upon the number of customers that the customer and service functions are designed to support. Janzen Inc. had 55 customers in 2011 and 62 customers in 2012. The industry market for 40H units increased by 6% from 2011 to 2012. Which of the following is a measure of the internal business perspective?

A)Operating income growth from charging higher profit margins for 40H.
B)Market share in the 40H market.
C)Order delivery time.
D)Improving manufacturing processes.
E)Number of employees trained in quality management.

Question 20

Following a strategy of product differentiation, Janzen Inc. makes a high-end product entitled "40H.". Janzen Inc. presents the following data for the years 2011 and 2012: $\begin{array} { l r r } & \mathbf { 2 0 1 1 } & \mathbf { 2 0 1 2 } \\\text { Units of } 40 \mathrm { H } \text { started } & \$ 21,000 & \$ 22,000 \\\text { Selling price } & \$ 300 & \$ 320 \\\text { Direct materials cost per square foot } & \$ 50,000 & \$ 51,500 \\\text { Direct materials square feet } & 30 & 32 \\\text { Manufacturing capacity for } 40 \mathrm { H } \text { (units) } & 30,000 & 30,000 \\\text { Total conversion costs } & \$ 1,500,000 & \$ 1,600,000 \\\text { Conversion costs per unit of capacity } & \$ 30 & \$ 34 \\\text { Selling and customer service capacity (number of customers) } & 70 & 68 \\\text { Total selling and customer service costs } & \$ 460,000 & \$ 462,500 \\\text { Cost per customer of selling and customer service capacity } & \$ 7,000 & \$ 7,250\end{array}$ Janzen Inc. produces no defective units but it wants to reduce the direct materials usage per unit of 40H in 2012. Manufacturing conversion costs in each year depend upon production capacity defined in terms of the number of 40H units that can be produced. Selling and customer-service costs depend upon the number of customers that the customer and service functions are designed to support. Janzen Inc. had 55 customers in 2011 and 62 customers in 2012. The industry market for 40H units increased by 6% from 2011 to 2012. Which of the following is a measure of the customer perspective?

A)Operating income growth from charging higher profit margins for 40H.
B)Market share in the 40H market.
C)Order delivery time.
D)Improving manufacturing processes.
E)Revenue growth.

Question 21

Which of the following costs would be classified as an appraisal cost on a quality report?

A)Reliability engineering.
B)Materials inspection.
C)Rework.
D)Warranty repairs.
E)Out-of-court liability settlements.

Question 22

Which of the following costs would be classified as an internal failure cost on a quality report?

A)Reliability engineering.
B)Materials inspection.
C)Rework.
D)Warranty repairs.
E)Out-of-court liability settlements.

Question 23

Which of the following choices best describes warranty costs and the cost of lost customer sales respectively?

A)Internal failure cost, external failure cost.
B)Prevention cost, external failure cost.
C)Prevention cost, internal failure cost.
D)External failure cost, internal failure cost.
E)External failure cost, external failure cost.

Question 24

Which of the following is not a typical quality-cost classification?

A)External failure cost.
B)Internal failure cost.
C)Production inefficiency cost.
D)Prevention cost.
E)Appraisal cost.

Question 25

When target costing and target pricing are used together:

A)the target cost is established first, then the target price.
B)the target price is set to undercut the competition.
C)the target costs are higher than current costs because of inflation over time.
D)the target price is the estimated price for a product or service that a potential customer will be willing to pay.
E)the target profit cannot be estimated.

Question 26

Which of the following costs would be classified as a prevention cost on a quality report?

A)Reliability engineering.
B)Materials inspection.
C)Rework.
D)Warranty repairs.
E)Out-of-court liability settlements.

Question 27

For what purpose is the theory of constraints used?

A)To reduce product defects.
B)To balance performance measurement
C)To identify and manage organizational bottlenecks.
D)To reduce inventory levels.
E)To seek best practices by comparing existing methods and performance levels with those of other organizations.

Question 28

Quality of conformance refers to:

A)the extent to which a product meets the specifications of its design.
B)the extent to which a product adds value to a firm's product line.
C)the extent to which a product is designed for its intended use.
D)the extent to which a product maximizes non-value-added activities in the production process.
E)a cost control that is achievable.

Question 29

The cost of servicing a unit under a warranty agreement is known as a(n):

A)external failure cost.
B)internal failure cost.
C)production inefficiency cost.
D)prevention cost.
E)appraisal cost.

Question 30

Which of the following costs would be classified as an external failure cost on a quality report?

A)Reliability engineering.
B)Materials inspection.
C)Rework.
D)Warranty repairs.
E)Pilot studies/focus-group sessions.

Question 31

Kaizen costing is consistent with:

A)cost reduction.
B)poor product quality.
C)financial accounting and income statements.
D)just-in-time production.
E)cost reduction and product quality.

Question 32

Which of the following choices correctly depicts a prevention cost and an external failure cost respectively?

A)Customer complaints, reliability engineering.
B)Quality training, product liability lawsuits
C)Inspection of work-in-process, product liability lawsuits.
D)In-house rework of defective units, transportation costs to customer sites.
E)Inspection of work-in-process, warranty costs.

Question 33

If goods are inspected and found to be defective, any rework costs related to these units before the units are transferred to the finished-goods warehouse would be classified as a(n):

A)external failure cost.
B)internal failure cost.
C)production inefficiency cost.
D)prevention cost.
E)appraisal cost.

Question 34

Aggregate productivity is defined as total output divided by:

A)total input.
B)sales price.
C)total stock on hand.
D)conversion cost.
E)product cost.

Question 35

Which of the following costs is often considered the hardest to measure?

A)Prevention costs.
B)Appraisal costs.
C)Internal failure costs.
D)External failure costs.
E)Cost of lost sales.

Question 36

Kaizen costing goals are not met by:

A)the reduction of non-value added activities.
B)the reduction of non-value added costs.
C)the elimination of waste.
D)the accumulation of non-value added costs.
E)improvements in manufacturing cycle time.

Question 37

Cost management systems tend to focus on an organization's:

A)machines.
B)employees.
C)activities.
D)customers.
E)rules and regulations.

Question 38

Target costing refers to:

A)an incentive system for employees.
B)the design of a product alone.
C)the profit from a product and the processes used to produce it.
D)the design of a product and the processes used to produce it to enable the firm to make a profit when products are sold.
E)kaizen costing.

Question 39

Handicomputer Company was having significant quality problems in its manufacturing plant. To remedy the situation, management implemented various up-front procedures and programs that were expected to reduce the production of bad units to acceptable (normal) levels and benefit the firm financially. If the procedures and programs functioned as intended, what is likely true about the amounts Handicomputer incurred for prevention cost, internal failure cost, and external failure cost respectively?

A)increase, increase, decrease.
B)increase, increase, increase.
C)increase, decrease, decrease.
D)decrease, decrease, decrease.
E)increase, decrease, increase.

Question 40

Which of the following is a danger in Process Re-engineering?

A)Non-value-added activities may be eliminated.
B)Additional non-value activities may be added
C)Employee morale may suffer.
D)Some resources may no longer be required.
E)New creative ways are found to accomplish an objective.

Question 41

A company that strives to maximize the value of its pollution-related activities would follow a(n):

A)process improvement strategy.
B)prevention strategy.
C)end-of-pipe strategy.
D)visible cost strategy.
E)matrix strategy.

Question 42

Bob's Burgers and Such, a national fast-food chain, has experienced a number of problems in the past few years, and management is considering the adoption of a balanced scorecard as part of a turnaround effort.
Required:
A. Briefly explain the concept of a balanced scorecard. What general factors are included in a typical balanced scorecard?
B. Independent of your answer in requirement "A," assume that Bob's is very concerned about customer satisfaction. List four different (and specific) customer-satisfaction measures that may be appropriate for the firm (and for other fast-food providers).
C. Independent of requirement "A," assume that Bob's wants to return to former levels of profitability. List several financial measures that would allow management to assess success or failure with respect to the following goals: (1) pay creditors on a timely basis, (2) keep shareholders happy, and (3) improve profitability over time at stores that have been open at least one year.
D. Answers will vary but often include market share, queue time, results of a customer quality survey, number of customer complaints, number of order errors, and number of repeat customers.
E. Pay creditors on a timely basis: stipulated end-of-period cash balance and current ratio

Question 43

Vernon Enterprises has identified the following as having an impact on the company's quality costs:
1. Inspection of manufactured goods on assembly line
2. Warranty repairs
3. Employee training
4. Quality engineering/design
5. Units repaired at customers' site
6. Product testing
7. Customer complaints
8. Product liability
9. Rework of defective goods before transfer to finished goods
10. Preventive maintenance for equipment
11. Evaluation of suppliers
Required:
A. Classify the eleven costs as prevention, appraisal, internal failure, or external failure.
B. Briefly contrast the objective of traditional quality control and contemporary quality control.

Question 44

Clean-up costs are commonly classified as:

A)monitoring costs.
B)abatement costs.
C)remediation costs.
D)internal failure costs.
E)external failure costs.

Question 45

The EOQ model is a mathematical tool for:

A)determining the order quantity that minimizes the costs of holding inventory.
B)determining the order quantity that minimizes the costs of ordering inventory.
C)determining the order quantity that maximizes the costs of holding inventory.
D)determining the order quantity that maximizes the costs of ordering and holding inventory.
E)determining the order quantity that minimizes the costs of ordering and holding inventory.

Question 46

Which of the following fails to be captured and reported by a company's accounting system as an environmental cost?

A)Monitoring costs.
B)Abatement costs.
C)Opportunity costs.
D)On-site remediation costs.
E)Off-site remediation costs.

Question 47

Under the contemporary view of product quality, companies should strive to:

A)balance failure costs with the sum of prevention and appraisal costs.
B)increase total quality costs.
C)achieve zero defects in manufacturing.
D)inspect after-the-fact rather than install a series of preventative manufacturing controls.
E)operate at the top of the total quality cost curve.

Question 48

The costs that follow appeared on the quality cost report of Greggor Incorporated: $\begin{array} { l r } \text { Quality training } & \$ 40,000 \\\text { Customer complaints } & 6,500 \\\text { Warranty costs } & 16,000 \\\text { Rework of defective units } & 13,000 \\\text { Raw-materials inspection } & 8,000\end{array}$ The sum of Greggor's appraisal and internal failure costs is:

A)$8,000.
B)$13,000.
C)$21,000.
D)$77,000.
E)$83,500.

Question 49

Many companies now require their suppliers to meet specified quality guidelines issued by the:

A)International Standards Organization (ISO).
B)Quality Assurance Institute (QAI).
C)Taguchi Standards Association (TSA).
D)Pareto Standards Institute (PSI).
E)The Environmental Protection Agency (EPA).

Question 50

Manhattan Mills Corp. has identified the following selected quality costs:
▪ Warranty costs: $80,000
▪ Employee training: $30,000
▪ Repair of units prior to shipment to customers: $15,000
▪ Quality engineering: $70,000
▪ Product inspection during manufacturing: $40,000
▪ Travel to customer sites to perform repairs: $8,000
Required:
A. Compute the company's prevention, appraisal, internal failure, and external failure costs.
B. Does a "hidden" quality cost sometimes occur when bad units enter the marketplace? Briefly explain.
C. Which of the following could have greater negative ramifications for Manhattan Mills: $100,000 of internal failure costs or $100,000 of external failure costs? Why?

Question 51

The costs that follow appeared on the quality cost report of Big Beez Company: $\begin{array} { | l | r | } \hline \text { Quality training } & \$ 60,000 \\\hline \text { Customer complaints } & 7,000 \\\hline \text { Warranty costs } & 20,000 \\\hline \text { Production stoppages from machine breakdowns } & 9,000 \\\hline \text { Raw-materials inspection } & 12,000 \\\hline\end{array}$ The sum of Big Beez's prevention and external failure costs is:

A)$80,000.
B)$87,000.
C)$92,000.
D)$99,000.
E)$108,000.

Question 52

Balanced scorecards contain a number of factors that are important to the success of a business. These factors are often divided into four categories: financial, customer, learning and growth, and internal operations.
Consider the twelve factors that follow. Required:
Determine the proper classification (financial, customer, learning and growth, or internal operations) for each of the twelve factors listed.

Question 53

All of the following concepts are related to environmental management (cost and otherwise) except:

A)dynamic programming efforts.
B)sustainable development.
C)monitoring costs.
D)abatement costs.
E)remediation costs.

Question 54

Manufacturing cycle time is a popular non-financial measure used to evaluate performance.
Required:
A. Define manufacturing cycle time and indicate the optimal value (i.e., number) for this measure.
B. Provide examples of two changes in a manufacturing process that would help improve a company's cycle time.

Question 55

Air Canada Cargo operates an overnight package delivery service that competes with United Parcel Service (UPS). Top management is considering the use of a balanced scorecard to evaluate operations.
A. The balanced scorecard is a business model that helps to assess a firm's competitive position and ensures that the firm is progressing toward long-term survival. Balanced scorecards differ from organization to organization; however, in addition to customer-satisfaction measures, most have a combination of financial measures, internal operating measures, and measures of innovation/growth and learning.
A. What is a balanced scorecard and other than customer-satisfaction measures, what are its typical key components?
B. Customer-satisfaction measures could include number of packages delivered, market share, number of packages lost or damaged, number of customer complaints, average wait time when calling and scheduling a package pickup, and response time to customer problems.
B. List four customer-satisfaction measures that Continental might use to evaluate performance.

Question 56

Incremental costs of more expensive processes installed to reduce pollution are commonly known as:

A)monitoring costs.
B)abatement costs.
C)on-site remediation costs.
D)off-site remediation costs.
E)opportunity costs.

Question 57

Under JIT purchasing, ordering costs are most likely to be minimized by:

A)increasing the number of vendors.
B)making more frequent payments.
C)increasing the number of inspections.
D)eliminating inspections.
E)ordering in large quantities.

Question 58

Which of the following is a helpful tool in identifying the frequency of quality-control problems?

A)Decision trees.
B)Scatter diagrams.
C)Pareto diagrams.
D)Flowcharts.
E)Decision tables.

Question 59

Costs incurred to reduce or eliminate pollution are commonly known as:

A)monitoring costs.
B)abatement costs.
C)on-site remediation costs.
D)off-site remediation costs.
E)opportunity costs.

Question 60

The following information for a recent project was taken from the records of Green Company: Required:
A. How long did it take to complete the project once production commenced?
B. Compute the manufacturing cycle efficiency.
C. As judged by the cycle efficiency, what percentage of the overall production time was spent on (1) value-adding activities and (2) non-value adding activities?

Question 61

Baker Enterprises implemented a total quality management (TQM) program at the beginning of 20 x 1, closely monitoring amounts spent on prevention cost, appraisal cost, internal failure cost, and external failure cost. By the end of 20 x 3, Baker noted a significant improvement in the quality of its finished-goods production, with management sensing that the firm was close to "optimum results from both a quality and expenditure perspective." The quality improvement, coupled with favourable ratings in Consumer Reports, has led to a sizable boost in sales volume.
Required:
A. Present two examples of each of the following: prevention costs, appraisal costs, internal failure costs, and external failure costs.
B. Baker's TQM program is functioning as expected from an operational perspective. In view of this situation, what has likely happened (increase, decrease, or no effect) to:
1. The amount spent on total quality costs from 20 x 1 through 20 x 3.
2. The amount of hidden costs incurred by the company from 20 x 1 through 20 x 3.
3. The percentage of quality expenditures on prevention and appraisal costs relative to the sum of internal and external failure costs.
4. The amount of effort expended on appraisal efforts if the company has gone somewhat overboard in its prevention programs.

Question 62

Calculate the EOQ for each of the following independent scenarios:

Question 63

You are the Corporate Controller for The Montreal Equipment Company and your CEO has asked you for some insight into the Company's approach to inventory management. Prepare a brief memo to explain the major differences between the EOQ and JIT approaches to inventory management.

Question 64

Paralogic Corp. produces two microchips that are popular in the with laptop computer manufacturers: Model A and Model Quality cost reports revealed the following about Model B: Finally, the company's accounting department reported that the percentage of sales revenues consumed by quality costs is lower for Model B than for Model A.
Required:
A. Classify the costs that relate to Model A as prevention, appraisal, internal failure, or external failure.
B. Using your answer in requirement "A," compute prevention, appraisal, internal failure, and external failure costs as a percentage of Model A's total quality costs.
C. Comment on your findings, noting whether the company is "investing" its quality expenditures differently for the two synthesizers.

Question 65

Companies are devoting an increased amount of attention to quality costs. Briefly explain the difference between internal failure costs and external failure costs. Which of these two costs will likely be more troublesome for an organization that desires to succeed in an extremely competitive marketplace? Briefly discuss.