26) Discuss the means by which a company goes about evaluating and installing a new quality improvement program. Answer:
1. The managers will have previously identified the quality problems by using analytical tools such as control charts, pareto diagrams, and cause and effect diagrams. These tools analyze quality problems and help in improving quality.
2. The mangers will then develop various solution options for improvement and project how total costs and total revenues for the company will change under each alternative solution. Once having done this analysis, they will select and implement the optimal solution.
3. The managers will then establish and implement nonfinancial measures of internal business process quality in order to assure the ongoing success of the solution that has been put in place. These measures include percentage of defective products, percentage of reworked products, and others. Improving these measures will lead to greater customer satisfaction, lower costs of quality, and better financial performance.
4. The managers will then establish and implement measures of learning and growth perspective for quality improvements. These include such measures as employee turnover, employee training, and others. This will encourage a continual focus on quality within the corporation.
Diff: 3
Objective: 2
AACSB: Analytical thinking
Objective 19.3
1) Managers identify the relevant costs and benefits for each solution by focusing on ________. A) the alternative solution that will derive maximum customer satisfaction
B) how total costs and total revenues will change under each alternative solution C) how the employees of a company would be able to implement a change D) how long it will take for the improved program to be fully functional Answer: B
Diff: 2
Objective: 3
AACSB: Analytical thinking
16
Copyright ? 2015 Pearson Education, Inc.
Answer the following questions using the information below:
Strykerz Corp expects to spend $800,000 in 2015 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 $60,000 in fixed appraisal costs and variable costs of $0.50 per unit of finished product. The new method involves $140,000 in training costs and an additional $150,000 in annual equipment rental.
Internal failure costs average $160 per failed unit of finished goods. During 2014, 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.
2) What is the net effect on appraisal costs for 2015, assuming the new receiving method is implemented and that 800,000 material units are received? A) $120,000 increase B) $170,000 decrease C) $190,000 decrease D) $400,000 increase Answer: B
Diff: 2
Objective: 3
AACSB: Application of knowledge
3) What would be the change in the external failure budget, if 600,000 units are used and assuming external failures are reduced by 10%. A) $40,000 increase B) $250,000 decrease C) $240,000 decrease D) $320,000 decrease Answer: C
Explanation: C)
External failure costs [(600,000) × 0.01 × $400 $2,400,000 10% reduction from new method × 0.10 Savings $ 240,000 Diff: 3
Objective: 3
AACSB: Application of knowledge
17
Copyright ? 2015 Pearson Education, Inc.
Answer the following questions using the information below:
LaCrosse Products has a budget of $900,000 in 2015 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.
4) What is the net change in the budget for prevention costs if the procedures are automated in 2015? Will management agree with the changes? A) $60,000 decrease, yes B) $60,000 increase, yes C) $140,000 increase, no D) $80,000 decrease, yes Answer: B
Explanation: B) New costs: Training $40,000 New equipment 100,000 $140,000 Savings
Variable costs (80,000)
Net increase in budget $ 60,000 Diff: 3
Objective: 3
AACSB: Application of knowledge
5) How much will appraisal costs change assuming the new prevention methods reduce material failures by 40% in the appraisal phase? A) $140,000 decrease B) $60,000 increase C) $50,000 decrease D) $22,500 decrease Answer: C
Explanation: C) Savings in appraisal costs is $50,000
Diff: 2
Objective: 3
AACSB: Application of knowledge
18
Copyright ? 2015 Pearson Education, Inc.
6) How much will internal failure costs change if the internal product failures are reduced by 1/3 with the new procedures? A) $22,500 decrease B) $67,500 decrease C) $500,000 decrease D) $750,000 decrease Answer: A
Explanation: A)
Internal failure rate (150,000 × 0.03) 4,500 Cost per unit × $15 Total $67,500 Savings rate × 1/3 Savings $22,500 Diff: 2
Objective: 3
AACSB: Application of knowledge
7) How much do external failure costs change if all changes are as anticipated with the new prevention procedures? Assume all units produced are sold and there are no ending inventories. A) $121,500 decrease B) $121,500 increase C) $243,000 decrease
D) None of these answers is correct. Answer: A
Explanation: A)
External failure costs (150,000 × 0.03 × $54)= $243,000 Savings rate × 0.50 Savings $121,500 Diff: 3
Objective: 3
AACSB: Application of knowledge
19
Copyright ? 2015 Pearson Education, Inc.
8) Management has offered to allow the prevention changes if all changes take place as anticipated and the amounts netted are less than the cost of the equipment. What is the net impact of all the changes created by the preventive changes? A) $140,000 B) $(22,500) C) $(134,000) D) $(121,500) Answer: C
Explanation: C) Training Costs $40,000 Equipment Costs 100,000 140,000
Savings
Prevention $ (80,000) Appraisal (50,000) Internal failure costs (22,500) External failure costs (121,500) (274,000) Net Savings $( 134,000) Diff: 3
Objective: 3
AACSB: Application of knowledge
20
Copyright ? 2015 Pearson Education, Inc.