Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 2

Taguchi Loss Function Analysis (Appendix) Flextronchip, an OEM manufacturer, has a fifth-generation chip for cell phones, with chip specification of 0.2 ± 0.0002 mm for the distance between two adjacent pins. The loss due to a defective chip has been estimated as $20.
Required
1. Compute the value of k in the Taguchi loss function.
2. Assume that the quality control manager takes a sample of 100 chips from the production process. The results are as follows:
a. Calculate the estimated quality loss for each of the observed measurements.
b. Calculate the expected (i.e., average) loss for the production process as a whole.
3. Using the data from (2) above:
a. Determine the variance in the measured distance between two pins.
b. Calculate the expected loss of the process using the calculated variance, per the method presented by Albrecht and Roth, "The Measurement of Quality Costs: An Alternative Paradigm," Accounting Horizons (June 1992), pp. 1527.