26) External failure costs are costs incurred on defective products after they have been shipped to customers.
Answer: TRUE
Diff: 2
Objective: 1
AACSB: Analytical thinking
27) When evaluating alternatives to improve quality, both the relevant benefits as well as the relevant costs should be considered. Answer: TRUE
Diff: 1
Objective: 1
AACSB: Analytical thinking
28) Prevention costs include inspection and product testing. Answer: FALSE
Diff: 2
Objective: 1
AACSB: Application of knowledge
29) Warranty costs is an example of external failure costs. Answer: TRUE
Diff: 2
Objective: 1
AACSB: Application of knowledge
30) What are ISO 9000 and ISO 14000?
Answer: ISO 9000, developed by the International Organization for Standardization, is a set of five international standards for quality management adopted by more than 85 countries. The standards help companies monitor, document, and certify the elements of their production processes that lead to quality.
ISO 14000, also developed by the International Organization for Standardization, are standards designed to encourage organizations to develop (1) environmental management systems to reduce environmental costs and (2) environmental auditing and performance-evaluation systems to review and monitor their progress toward their environmental goals.
Diff: 2
Objective: 1
AACSB: Analytical thinking
6
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31) The two basic aspects of quality are quality of design and conformance quality. Define and give an example of each.
Answer: Quality of design measures how closely the characteristics of products or services meet the needs and wants of customers. For example, customers of photocopying machines want copiers that combine copying, faxing, scanning, and electronic printing. If the photocopy machines fail to meet these customer needs, sales will fall.
Conformance quality refers to the performance of a product or service according to design and product specifications. For example, if a photocopy machine constantly has paper jams or breaks down, it fails to satisfy conformance quality.
Diff: 1
Objective: 1
AACSB: Analytical thinking
32) Ply Corp manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.
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
m. Reentering data because of keypunch errors
________ Prevention costs
________ Appraisal costs
________ Internal failure costs
________ External failure costs Answer:
g, j Prevention costs
d, l, k Appraisal costs
a, b, c, h, i, m Internal failure costs
e, f, External failure costs
Diff: 3
Objective: 1
AACSB: Application of knowledge
7
Copyright ? 2015 Pearson Education, Inc.
33) Dawn and Kim just bought a bed and breakfast inn at a very attractive price. The business had been doing poorly. Before they reopened the inn for business, they attended a seminar on operating a high quality business. Now that they are ready to open the inn, they need some advice on quality costs and management.
Required:
Identify four categories of quality costs. In addition, identify three items that would be classified in each of the categories. Answer: Prevention: Hiring employees with good references Training of owners and employees Good security Good reservation system Purchasing quality furniture
Appraisal: Verifying accuracy of reservation and registration procedures Inspecting rooms, facilities, building and grounds regularly Observing activities of employees Testing furniture and fixtures Taste testing food
Internal failure: Recleaning rooms and facilities Restocking rooms with linens, glasses, etc. Out-of-stock supplies Reinspection Failure to bill on a timely basis
External failure: Responding to complaints about rooms and food Responding to complaints about reservations Emergency cleaning of rooms when not ready on time Customer refunds because of unsatisfactory conditions Opportunity cost of lost revenue resulting from unhappy customers
Diff: 3
Objective: 1
AACSB: Application of knowledge
34) Wilson's Language School manufactures CDs and DVDs to teach English as a Second Language.
Wilson has just prepared a Cost of Quality Report, and the staff has noticed a decline in prevention costs as a percentage of total sales over a three-year period. What changes might Wilson expect to see in
appraisal costs as a percentage of sales, internal failure costs as a percentage of sales, and external failure costs as a percentage of sales given this trend?
Answer: Most likely, the decline in prevention costs as a percentage of sales over a three-year period would result in increased internal and external failure costs as a percentage of sales during this same period. The reduced prevention activities might result in more defective products. Appraisal costs as a percentage of sales might also rise as management attempts to compensate for the higher failure rates by increasing inspection and appraisal costs to prevent defects from reaching the final customer.
Diff: 3
Objective: 1
AACSB: Application of knowledge
8
Copyright ? 2015 Pearson Education, Inc.
35) A quality improvement program is very costly to implement across a large corporation. Why do they do it? Explain.
Answer: A focus on quality within an organization will have the long run benefit of reducing costs and increasing customer satisfaction. The corporation must consider four key cost of quality areas where costs are most likely to occur: (1) prevention costs - which arise when the product does not meet the specifications, (2) appraisal costs - incurred by actions which must be taken to detect which of the individual units of products do not
conform with the specification(s), (3) internal failure costs - incurred on defective products before they are shipped to customers, and (4) external failure costs - incurred on defective products after they are shipped to customers. Any company which does not invest in quality improvement by constantly reviewing, revising, and implementing procedures to maintain focus on the four key cost of quality areas will be almost certain to have lower profits, revenues, and market share.
Diff: 3
Objective: 1
AACSB: Analytical thinking
Objective 19.2
1) An example of a nonfinancial measure for customer satisfaction is ________. A) number of customer complaints B) warranty claims
C) liability claims incurred to the company D) rework costs due to inefficiency Answer: A
Diff: 3
Objective: 2
AACSB: Analytical thinking
2) An example of a nonfinancial measure for customer satisfaction is ________. A) average manufacturing time for key products B) contribution margin
C) percentage of products that fail soon after delivery D) time taken on machine repairs and costs incurred Answer: C
Diff: 3
Objective: 2
AACSB: Analytical thinking
3) A graph of a series of successive observations of a particular step, procedure, or operation taken at regular intervals of time is a ________. A) control chart B) Pareto diagram
C) cause-and-effect diagram D) fishbone diagrams Answer: A
Diff: 2
Objective: 2
AACSB: Analytical thinking
9
Copyright ? 2015 Pearson Education, Inc.
4) Statistical quality control includes a control chart that ________. A) graphs a series of random events of a process
B) plots each observation relative to specified ranges that represent the expected distribution C) plots control observations over various periods of time D) plots only those observations outside specified limits Answer: B
Diff: 2
Objective: 2
AACSB: Analytical thinking
5) As per control charts, nonrandom variations occurs when ________. A) there is a sudden increase in production
B) chance fluctuations in the speed of equipment cause defective products to be produced C) defective products are produced as a result of a systematic problem D) there is a sudden increase in sales Answer: C
Diff: 2
Objective: 2
AACSB: Analytical thinking
6) A tool which indicates how frequently each type of defect occurs is a ________. A) control chart B) Pareto diagram C) scatter diagram D) fishbone diagram Answer: B
Diff: 2
Objective: 2
AACSB: Analytical thinking
7) An important difference between financial measures of quality and nonfinancial measures of quality is that ________.
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, while financial measures are too objective for taxation purposes
D) nonfinancial measures are generally too subjective to have any short-term value, while financial measures are too objective to have medium-term value Answer: B
Diff: 3
Objective: 2
AACSB: Analytical thinking
10
Copyright ? 2015 Pearson Education, Inc.