Question 1

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.

Accepted Answer

The answer of Brix, Inc., prepares frozen food for fast-food...

Question 2

Costs incurred in precluding the production of products that do NOT conform to specifications are:

Accepted Answer

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

Question 3

Rework is an example of:

Accepted Answer

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

Question 4

Answer the following questions using the information below:
LaCrosse Products has a budget of $900,000 in 2012 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.
-How much will internal failure costs change if the internal product failures are reduced by 1/3 with the new procedures?

Accepted Answer

A) $22,500 decrease 
B) $67,500 decrease 
C) $500,000 decrease 
D) $750,000 decrease

Question 5

When using a control chart, the observations outside the upper and lower product specification limits are ordinarily regarded as non random and worth investigating.

Accepted Answer

A) True 
 B)False

Question 6

Conformance quality is the performance of a product or service relative to its design and product specifications.

Accepted Answer

A) True 
 B)False

Question 7

An example of a nonfinancial measure of customer satisfaction would be the percentage of products that fail soon after delivery.

Accepted Answer

A) True 
 B)False

Question 8

Answer the following questions using the information below:
Tri-State Manufacturing expects to spend $800,000 in 2012 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 $80,000 in fixed appraisal costs and variable costs of $0.40 per unit of finished product. The new method involves $120,000 in training costs and an additional $160,000 in annual equipment rental. It takes two units of material for each finished product.
Internal failure costs average $160 per failed unit of finished goods. During 2011, 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.
-Companies that use manufacturing lead time as the base for allocating manufacturing costs to products consider that it has the following benefit(s):

Accepted Answer

A) Managers are motivated to reduce the time taken to manufacture products. 
B) Total overhead costs decrease. 
C) Operating income rises. 
D) All of these answers are correct.

Question 9

When considering the theory of constraints, operating costs refer to all costs involved in the manufacturing process.

Accepted Answer

A) True 
 B)False

Question 10

Producing more nonbottleneck output:

Accepted Answer

A) creates more inventory, but does not increase throughput contribution 
B) creates more inventory and increases throughput contribution 
C) creates less pressure for the bottleneck workstations 
D) allows for the maximization of overall contribution

Question 11

Design quality refers to the performance of a product or service relative to its design and product specification.

Accepted Answer

A) True 
 B)False

Question 12

Three tools used to detect quality problems include control charts, Pareto charts, and cause and effect diagrams. Briefly explain each of these tools.

Accepted Answer

The answer of Three tools used to detect quality problems...

Question 13

Answer the following questions using the information below:
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 160 units. All units produced can be sold even though the change increases inventory stock by 20% from 400 units. The cost of operating the cutting department two more hours each day is $1,600. The contribution margin of the finished products is $6 each. Inventory carrying costs are $0.40 per unit per day.
-What is the change in the daily contribution margin if the change is made?

Accepted Answer

A) $(608) 
B) $(634) 
C) $(672) 
D) $800

Question 14

A corporation can measure its quality performance by using financial or nonfinancial measures of quality. Discuss the merits of each method and whether the use of one precludes the use of the other.

Accepted Answer

The answer of A corporation can measure its quality performance...

Question 15

Answer the following questions using the information below:
Tri-State Manufacturing expects to spend $800,000 in 2012 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 $80,000 in fixed appraisal costs and variable costs of $0.40 per unit of finished product. The new method involves $120,000 in training costs and an additional $160,000 in annual equipment rental. It takes two units of material for each finished product.
Internal failure costs average $160 per failed unit of finished goods. During 2011, 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 2012, assuming the new receiving method is implemented and that 800,000 material units are received?

Accepted Answer

A) $120,000 increase 
B) $120,000 decrease 
C) $400,000 decrease 
D) $400,000 increase

Question 16

Examples of opportunity costs include:

Accepted Answer

A) lost sales 
B) forgone contribution margin 
C) lower production 
D) All of these answers are correct.

Question 17

Two important drivers of time are limited capacity and bottlenecks.

Accepted Answer

A) True 
 B)False

Question 18

A tool which identifies potential causes of failures or defects is a:

Accepted Answer

A) control chart 
B) Pareto diagram 
C) cause-and-effect diagram 
D) None of these answers is correct.

Question 19

Keeping the bottleneck operation busy and subordinating all nonbottleneck operations to the bottleneck operation involves:

Accepted Answer

A) maximizing the contribution margin of the nonbottleneck operation 
B) keeping the bottleneck resource busy at least 90% of the time 
C) having the workers at the nonbottleneck operation or machine improving their productivity 
D) None of these answers is correct.

Question 20

A graph of a series of successive observations of a particular step, procedure, or operation taken at regular intervals of time is a:

Accepted Answer

A) control chart 
B) Pareto diagram 
C) cause-and-effect diagram 
D) fishbone diagrams

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

Costs incurred in precluding the production of products that do NOT conform to specifications are:

Rework is an example of:

When using a control chart, the observations outside the upper and lower product specification limits are ordinarily regarded as non random and worth investigating.

Conformance quality is the performance of a product or service relative to its design and product specifications.

An example of a nonfinancial measure of customer satisfaction would be the percentage of products that fail soon after delivery.

When considering the theory of constraints, operating costs refer to all costs involved in the manufacturing process.

Producing more nonbottleneck output:

Design quality refers to the performance of a product or service relative to its design and product specification.

Three tools used to detect quality problems include control charts, Pareto charts, and cause and effect diagrams. Briefly explain each of these tools.

A corporation can measure its quality performance by using financial or nonfinancial measures of quality. Discuss the merits of each method and whether the use of one precludes the use of the other.

Examples of opportunity costs include:

Two important drivers of time are limited capacity and bottlenecks.

A tool which identifies potential causes of failures or defects is a:

Keeping the bottleneck operation busy and subordinating all nonbottleneck operations to the bottleneck operation involves:

A graph of a series of successive observations of a particular step, procedure, or operation taken at regular intervals of time is a: