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Exam 17: The Management and Control of Quality

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Question 31

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Costs incurred in conjunction with the measurement and analysis of data to ascertain conformity of products and services to specification are properly classified as:

A) External failure costs.
B) Appraisal costs.
C) Internal failure costs.
D) Prevention costs.
E) Value-added costs.

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Question 32

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Oslo Company's target quality characteristic,T,for one of its key components is set at 82.Using the Taguchi Loss Function the company has determined the cost coefficient,k,to be $6,000.What is the estimated loss,L(x) ,if the value of the quality characteristic,x,is 85?

A) $1,500.
B) $4,500.
C) $18,000.
D) $42,500.
E) $54,000.

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Question 33

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Verizon Manufacturing Company spent $400,000 in 2009 to inspect incoming components.Of the $400,000,$240,000 is fixed appraisal costs.The variable inspection cost is $0.20 per component.It takes two components for each finished product.Internal failure costs average $80 per failed unit of finished goods.In 2009,five percent of all completed items had to be reworked.External failure costs average $200 per failed unit.The company's average external failures are one percent of units sold.The company manufactures all units as ordered and carries no materials inventories.Seeking to decrease its total cost of quality (COQ) Verizon contracted Quality-is-Free Consultants,Inc.(QIFC) to study ways to improve product quality and to reduce costs.Upon completion of the study,QIFC recommended automatic inspection equipment that requires $60,000 annual cost for training and $150,000 for equipment rental and maintenance.The new equipment will eliminate $40,000 of the fixed appraisal costs,reduce the amount of unacceptable product units in the manufacturing process by 10 percent,and cut product failures by half.The company paid the consulting firm $100,000 in early January 2010 for the project.Verizon expects no changes in its operating level in the foreseeable future.What effect does the new equipment have on appraisal costs?

As noted in Chapter 17,one approach to setting quality standards is to use a Six Sigma approach. Required: (1)What is meant by the term "Six Sigma"? (2)The overall process of implementing process-improvement projects is referred to as DMAIC (Define,Measure,Analyze,Improve,and Control).Provide an overview of each stage of the DMAIC specifically within the context of a Six Sigma implementation.

Heiderberg Manufacturing specifies the quality characteristic for one of its key components to be 154" $\pm$ 4.The cost of failure is estimated to be $8,000 per unit.Using the Taguchi Loss Function the firm has estimated the loss,L(x) ,at the quality characteristic that the firm has experienced,x,to be $4,500.What is the estimated loss if the deviation from the value of the quality characteristic doubled?

Test equipment maintenance costs would be classified as:

An electronic component in a computer has an output voltage specification of 100 $\pm$ 1 milivolts.The loss to the firm for a component that is outside of the specifications is $750.The output voltage for a sample unit is 101 milivolts. Required: (1)Calculate the value of k,the cost coefficient in the Taguchi loss function. (2)Calculate the amount of loss for the unit,L(101).

The Taguchi Quality Loss Function (QLF) demonstrates that as the quality measure of a product declines,the loss due to quality defects:

Steel Inc.specializes in manufacturing ship doors.The blueprint specification for the thickness of a high-demand model calls for 0.9 $\pm$ 0.005 inch.It costs $800 to scrap a part that is outside of the specification.The thickness measure for the unit just completed is 0.85. Required: (1)Calculate the value of k,the cost coefficient in the Taguchi loss function. (2)Calculate the estimated amount of loss for the unit,L(x)= 0.85.

A quality circle:

Hyland Company manufactures generic products for several major discount chain stores.Robert Hyland,founder and CEO,has always followed a strategy of producing low-cost standard products.Hyland now is facing foreign competitors who offer similar products with higher quality and more features (options)than Hyland's products.Although Hyland still offers the lower prices than its competitors,Hyland's net income has been steadily decreasing over the last three quarters. Required: What should Hyland do?

Costs incurred to keep quality defects from occurring are classified as:

Verizon Manufacturing Company spent $400,000 in 2009 to inspect incoming components.Of the $400,000,$240,000 is fixed appraisal costs.The variable inspection cost is $0.20 per component.It takes two components for each finished product.Internal failure costs average $80 per failed unit of finished goods.In 2009,five percent of all completed items had to be reworked.External failure costs average $200 per failed unit.The company's average external failures are one percent of units sold.The company manufactures all units as ordered and carries no materials inventories.Seeking to decrease its total cost of quality (COQ) Verizon contracted Quality-is-Free Consultants,Inc.(QIFC) to study ways to improve product quality and to reduce costs.Upon completion of the study,QIFC recommended automatic inspection equipment that requires $60,000 annual cost for training and $150,000 for equipment rental and maintenance.The new equipment will eliminate $40,000 of the fixed appraisal costs,reduce the amount of unacceptable product units in the manufacturing process by 10 percent,and cut product failures by half.The company paid the consulting firm $100,000 in early January 2010 for the project.Verizon expects no changes in its operating level in the foreseeable future.How much are internal failure costs projected to change?

In a Cost of Quality (COQ) report,costs to acquire and install training equipment would be classified as:

Management accountants can help support the quality initiatives of management by supplying decision-makers with relevant financial information regarding these initiatives.Which of the following statements is true regarding costs that are relevant for decision-making within this context?

A graph that depicts successive observations of an operation taken at constant intervals is a(n) :

Pandra Manufacturing specifies the quality characteristic of one of its popular products to be 0.500" $\pm$ 0.020.An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $125 per unit.The customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic exceeds on either side of the target of 0.500,by the tolerance of 0.020.Using a Taguchi loss function for this company,what is the amount of the estimated loss when the actual quality characteristic,x,is 0.505?

For Cost of Quality (COQ) reporting purposes,contribution margin of canceled sales orders due to quality deficiency would be classified as:

Jordan Company manufactures doors and maintains a Cost-of-Quality (COQ)reporting system.Classify each of the following quality-related costs as a prevention cost,an appraisal cost,an internal failure cost,or an external failure cost. (a)Retesting of reworked products (b)Downtime due to quality problems (c)Analysis of the cause of defects in production (d)Depreciation of test equipment (e)Warranty repairs (f)Lost sales arising from a reputation for poor quality (g)Quality circles (h)Rework direct manufacturing labor and overhead (i)Net cost of spoilage (j)Technical support provided to suppliers (k)Audits of the effectiveness of the quality system (l)Plant utilities in the inspection area

What is the reasoning behind the misconception that quality improvements decrease productivity?