Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 27

Taguchi Loss Function
Panguitch Company manufactures a component for tablet computers. Weight and durability of the component are the two most important quality characteristics for the tablet manufacturers. With respect to the weight dimension, the component has a target value of 100 grams. Specification limits are 100 grams, plus or minus five grams. Products produced at the lower specification limit of 95 grams lose $20. A sample of five units produced the following weight measures:

During the first quarter, 100,000 units were produced.
Required:
1. Calculate the loss for each unit. Calculate the average loss for the sample of five.
2. Using the average loss, calculate the hidden quality costs for the first quarter.
3. Durability is another important quality characteristic. The target value is 20,000 hours of operation before failure. The lower specification limit set by engineering and marketing is 19,000 hours. They agreed that there should be no upper specification limit. They also noted that there is a $750 loss at the lower specification limit. Explain why there would be no upper specification limit. Use the lower limit and the left half of the Taguchi quadratic loss function to estimate the loss for components with the following lives: 6,500 hours, 11,000 hours, and 15,500 hours. What does this reveal about the importance of durability?