Question 1

A liability claim is an example of:

Accepted Answer

A) prevention costs 
B) appraisal costs 
C) internal failure costs 
D) external failure costs

Question 2

The theory of constraints considers a short-run time horizon and assumes operating costs are fixed.

Accepted Answer

A) True 
 B)False

Question 3

The number of design and process changes made to improve design quality or reduce costs of quality is a type of nonfinancial quality measure.

Accepted Answer

A) True 
 B)False

Question 4

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 average waiting time, in minutes?

Accepted Answer

A) 1 
B) 1.5 
C) 2.5 
D) 3.5

Question 5

Answer the following questions using the information below:
Dylan Products has a budget of $1,200,000 in 2011 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs. The new method will require $40,000 in training costs and $150,000 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 210,000 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 $20 per failed unit of finished goods. The internal failure rate is expected to be 4% 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 $48 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?

Accepted Answer

A) $150,000 decrease 
B) $229,000 decrease 
C) $50,000 increase 
D) $50,000 decrease

Question 6

Two common operational measures of time are customer-response time and manufacturing lead time.

Accepted Answer

A) True 
 B)False

Question 7

A Pareto Diagram is usually in a bar-chart format, and it shows how often a particular problem has occurred.

Accepted Answer

A) True 
 B)False

Question 8

Discuss the means by which a company goes about evaluating and installing a new quality improvement program.

Accepted Answer

The answer of Discuss the means by which a company...

Question 9

An example of a nonfinancial measure for customer satisfaction is:

Accepted Answer

A) delivery delay 
B) employee turnover 
C) number of defects on the production line 
D) process yield

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

Manufacturing Cycle Efficiency (MCE)= Value-added Manufacturing Time divided by Manufacturing Cycle Time

Accepted Answer

A) True 
 B)False

Question 12

Aunt Lydia's Cookies, Inc., prepares frozen gourmet cookies for shipment to upscale grocery stores as well as mailing to web and catalog customers. The company has two workstations, cooking and distribution. The cooking station is limited by the cooking time of the food. Distribution is limited by the speed of the workers. Distribution normally waits on food from cooking. Because the demand has increased in recent months to 4,000 dozen cookies, management is considering adding another oven in the 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 $1,500. The cost of adding another cooking station would add an average of $8 per hour. The current operating hours total eight hours a day, 24 days a month. The contribution margin of the finished products is currently $2 per dozen. Inventory carrying costs average $0.50 per dozen per month. Either the extra hour or the new cooking station would increase production by 50 dozen a day, with a long-run increase of 100 dozen units in finished goods inventory to 500 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.
c. What course of action would you recommend?

Accepted Answer

The answer of Aunt Lydia's Cookies, Inc., prepares frozen gourmet...

Question 13

Answer the following questions using the information below:
Dylan Products has a budget of $1,200,000 in 2011 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs. The new method will require $40,000 in training costs and $150,000 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 210,000 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 $20 per failed unit of finished goods. The internal failure rate is expected to be 4% 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 $48 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.
-An important difference between financial measures of quality and nonfinancial measures of quality is that:

Accepted Answer

A) financial measures of quality tend to be useful indicators of future long-term performance, while nonfinancial measures have more of a short-term focus 
B) nonfinancial measures of quality tend to be useful indicators of future long-term performance, while financial measures of quality have more of a short-term focus 
C) nonfinancial measures are generally too subjective to have any long-term value 
D) None of these answers is correct.

Question 14

The last step of the five-step decision making process is implementing the decision, evaluating performance, and learning. How can a balanced scorecard play a role in helping to assure this final step will be successful?

Accepted Answer

The answer of The last step of the five-step decision...

Question 15

Shortening delivery times is a minor part of the quality improvement process.

Accepted Answer

A) True 
 B)False

Question 16

When considering customer needs and wants, only financial measures can be used, since they are easily measured.

Accepted Answer

A) True 
 B)False

Question 17

The Custom Shirt House is concerned about its declining sales, especially the reduction in the number of customers. For the last two years, its shirts have won industry awards for high quality and trend-setting styles. At the latest executive managers' meeting, everyone was blaming everyone else for the decline. After much discussion and presenting some fact-finding information, it was determined that sales relationships were the cause of most of the problems.
Required:
What may be some of the causes and how can the causes be detected if product quality is not an issue?

Accepted Answer

The answer of The Custom Shirt House is concerned about...

Question 18

Answer the following questions using the information below:
Monticello Furniture manufactures expensive tables. Its varnishing department is fully automated and requires substantial inspection to keep the machines operating properly. An improperly varnished table is very expensive to correct. Inspection hours for the 5,000 tables varnished in September totaled 1,250 hours by 8 employees. Eight quarts of varnish were used, on average, for each table. The standard amount of varnish per table is nine quarts. The cost of inspection for September was equal to the budgeted amount of $38,000.
-What is the inspection cost per unit?

Accepted Answer

A) $30.40 
B) $7.60 
C) $3,800 
D) $4,000

Question 19

Most companies expend a substantial amount of dollars measuring the financial costs of design quality.

Accepted Answer

A) True 
 B)False

Question 20

Cost of Quality financial measures will usually deteriorate when nonfinancial measures of quality are emphasized and improved.

Accepted Answer

A) True 
 B)False

Exam 19: Balanced Scorecard: Quality, Time, and the Theory of Constraints

A liability claim is an example of:

The theory of constraints considers a short-run time horizon and assumes operating costs are fixed.

The number of design and process changes made to improve design quality or reduce costs of quality is a type of nonfinancial quality measure.

Two common operational measures of time are customer-response time and manufacturing lead time.

A Pareto Diagram is usually in a bar-chart format, and it shows how often a particular problem has occurred.

Discuss the means by which a company goes about evaluating and installing a new quality improvement program.

An example of a nonfinancial measure for customer satisfaction is:

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.

Manufacturing Cycle Efficiency (MCE)= Value-added Manufacturing Time divided by Manufacturing Cycle Time

The last step of the five-step decision making process is implementing the decision, evaluating performance, and learning. How can a balanced scorecard play a role in helping to assure this final step will be successful?

Shortening delivery times is a minor part of the quality improvement process.

When considering customer needs and wants, only financial measures can be used, since they are easily measured.

Most companies expend a substantial amount of dollars measuring the financial costs of design quality.

Cost of Quality financial measures will usually deteriorate when nonfinancial measures of quality are emphasized and improved.