8) Examples of nonfinancial measures of quality include the ________. A) inspection costs incurred
B) number of customer complaints C) design engineering costs D) quality training costs Answer: B
Diff: 2
Objective: 2
AACSB: Application of knowledge
9) Cause-and-effect diagrams are used in quality management systems to ________. A) identify and respond to potential reasons of failure B) indicate how frequently each type of failure occurs
C) distinguish random from nonrandom variations in an operating process
D) evaluate the tradeoffs among prevention costs, appraisal costs, and failure costs Answer: A
Diff: 2
Objective: 2
AACSB: Application of knowledge
10) A tool that distinguishes random from nonrandom variations in an operating process is a ________. A) control chart B) Pareto diagram
C) cause-and-effect diagram D) time-series graphs Answer: A
Diff: 2
Objective: 2
AACSB: Analytical thinking
11) When considering customer needs and wants, only financial measures can be used, since they are easily measured. Answer: FALSE
Explanation: When considering customer needs and wants, both financial as well as nonfinancial measures can be used.
Diff: 1
Objective: 2
AACSB: Analytical thinking
12) An example of a financial measure of customer satisfaction would be the percentage of products that fail soon after delivery. Answer: FALSE
Explanation: Products that fail soon after delivery are an example of nonfinancial measure of customer satisfaction.
Diff: 2
Objective: 2
AACSB: Application of knowledge
11
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13) An on-time delivery rate is considered a nonfinancial measure of customer satisfaction. Answer: TRUE
Diff: 2
Objective: 2
AACSB: Application of knowledge
14) A control chart identifies potential causes of failures or defects. Answer: FALSE
Explanation: A cause and effect chart identifies potential causes of failures or defects.
Diff: 2
Objective: 2
AACSB: Analytical thinking
15) When using a control chart, the observations outside the upper and lower control limits are ordinarily regarded as nonrandom and worth investigating. Answer: TRUE
Diff: 2
Objective: 2
AACSB: Analytical thinking
16) The implication of controlling a process at a Six Sigma level is that the process produces only 3.4 defects per million products produced. Answer: TRUE
Diff: 2
Objective: 2
AACSB: Application of knowledge
17) A Pareto diagram is usually in a bar-chart format, that indicates how frequently each type of defect occurs, ordered from the most frequent to the least frequent. Answer: TRUE
Diff: 1
Objective: 2
AACSB: Analytical thinking
18) Six Sigma emphasizes incremental rather than dramatic or disruptive innovation. Answer: TRUE
Diff: 2
Objective: 2
AACSB: Analytical thinking
19) Percentage of reworked products is an example of a nonfinancial measure of internal business-process quality.
Answer: TRUE
Diff: 2
Objective: 2
AACSB: Application of knowledge
12
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20) Discuss the methods used to identify quality problems. Answer:
1. A control chart is a graph of a series of successive observations of a particular step, procedure, or operation taken at regular intervals of time. Each observation is plotted relative to specified ranges that represent the limits within which observations are expected to fall. Observations that fall outside the control limits are regarded as nonrandom and worth investigating.
2. A Pareto diagram indicates how frequently each type of failure (defect) occurs. Observations outside control limits serve as inputs for Pareto diagrams.
3. A cause-and-effect diagram helps to identify potential causes of failures or defects. The\the diagram represents the problem being examined. The large \off the backbone represent the main categories of potential causes of failure.
Diff: 2
Objective: 2
AACSB: Analytical thinking
21) 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. Answer: Financial measures of quality are quantifiable. The business can calculate the costs of setting up quality control systems, the costs of noncompliance with quality in terms of the internal and external costs (rework, warranty costs, etc.), and estimate the revenues lost as a result of quality problems.
Nonfinancial measures of quality are useful indicators of future long-run performance. They are helpful in revealing future needs and preferences of customers and in indicating the specific areas that need improvement.
The use of one measure does not preclude the use of the other. Financial measures tend to be short term in nature (what is happening now). Nonfinancial measures tend to be long term and are useful in terms of estimating trends.
Financial performance measures are more readily available than nonfinancial measures, but they are no more important to the overall goals of the organization. By considering nonfinancial measures, the organization can improve operational control. Superior financial performance usually follows from superior nonfinancial performance.
Diff: 2
Objective: 2
AACSB: Analytical thinking
13
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22) Komerica Corp is committed to its quality program. It works with all areas of the company to establish sound quality programs within reasonable budget guidelines. For 2015, it has budgeted
$1,000,000 for prevention costs and $800,000 for appraisal costs. Internal failure has a budget of $100 per failed item, while external failure has a total budget of $600,000.
Product Testing has proposed to management a change in the 2015 budget for a new method of testing products. If management decides to implement the new method, $2 per unit of appraisal costs will be saved, up to a level of 150,000 tests. No additional savings are expected past the 150,000 level. The new method involves $95,000 in training costs and $65,000 in yearly testing supplies.
Traditionally, 5% of all completed items have to be reworked. External failure costs average $120 per failed unit. The company's average external failures are 1% of units sold. The company carries no ending inventories.
Required:
a. What is the adjusted budget for appraisal costs, assuming the new method is implemented and 800,000 units are tested during the manufacturing process in 2015?
b. How much do internal failure costs change, assuming 500,000 units are tested under the new method and it reduces the amount of unacceptable units in the manufacturing process by 40%?
c. What would be the change in the external failure budget, assuming external failures are reduced by 60% and the same facts as in part (b)? Answer: a. Current Budget $ 800,000 Additions: Training $95,000 Additions: Supplies 65,000 160,000 Savings: 150,000 × $2 (300,000) Adjusted budget $ 660,000 b. Current budget $100 × 0.05 × 500,000 = $2,500,000 Savings rate × 0.40 Net savings (reduction in internal failure costs) $ 1,000,000 c. Current budget $120 × 0.01 × 500,000 = $600,000 Savings rate × 0.60 Net savings (reduction in external failure costs) $ 360,000 Diff: 3 Objective: 2
AACSB: Application of knowledge
14
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23) Northern Corp 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, all were blaming each other 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? Answer: The causes may be the lack of customer satisfaction with sales staff (poor sales skills), delivery problems (delayed deliveries), accounting problems (poor billing and collection procedures), or poor returns and allowance policies.
The causes may be detected by comparing nonfinancial measures of the company with those found in the industry. These might include measures of the number of incorrect shipments or not on time; the number of customer complaints about certain areas (billing, shipping, etc.); response time to customer complaints; or a questionnaire about why former customers quit buying from the company.
Diff: 2
Objective: 2
AACSB: Application of knowledge
24) Baby Care Products has just completed a very successful program of improving quality in its manufacturing operations. The next step is to improve the operations of its administrative functions, starting with the accounting information system. As the manager of the accounting operations, you are requested to begin a quality improvement program.
Required:
What are some possibilities of finding out about the current status of quality in the accounting system? Answer: The manager might begin by identifying \the methods of identifying quality problems. Statistical quality control helps to distinguish between random variation and nonrandom variation. A control chart of observations usually accompanies this. Another method is the use of a Pareto diagram. This indicates how frequently each type of failure occurs. Also, cause-and-effect diagrams help to identify potential causes of failure. A fishbone diagram is often used here to identify multiple causes of failure. Quality of design could potentially be the biggest problem.
Diff: 2
Objective: 2
AACSB: Application of knowledge
25) What are control charts and how can inferences be drawn from them?
Answer: A control chart is a graph of a series of successive observations of a particular step, procedure, or operation taken at regular intervals of time. These charts might indicate when a process is out of control by comparing observations to statistically determined upper and lower level control limits.
Each observation is plotted relative to specified ranges that represents the limits within which observations are expected to fall. Observations that fall outside the control limits are regarded as nonrandom and worth investigating.
Diff: 2
Objective: 2
AACSB: Application of knowledge
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