Chapter 16
Chapter 16
Chapter 16
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LEARNING OBJECTIVES
QUESTION GRID
True/False
Difficulty Level Learning Objectives
Easy Moderate Difficult LO 1 LO 2 LO 3 LO 4 LO 5 LO 6 LO 7 LO 8
1 X x
2 x x
3 x x
4 X x
5 x x
6 x x
7 x x
8 x x
9 x x
10 x x
11 x x
12 x x
13 x x
14 x x
15 x x
16 x x
17 x x
18 x x
19 x x
20 x x
21 x x
22 x x
23 x x
24 x x
25 X x
26 X x
27 x x
28 x x
Completion
Difficulty Level Learning Objectives
Easy Moderate Difficult LO 1 LO 2 LO 3 LO 4 LO 5 LO 6 LO 7 LO 8
1 X x
2 X x
3 x x
4 x x
5 x x
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580
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TRUE/FALSE
1. Productivity is measured by the quantity of good output generated from a specific amount of input
during a time period.
4. Quality control places the primary responsibility for product or service quality on the provider.
5. Grade refers to a product meeting the highest number of a customer’s needs at the lowest possible cost.
6. Grade refers to one of many quality levels that a product or service has relative to the inclusion or
exclusion of certain characteristics to satisfy customer needs.
7. Value refers to a product meeting the highest number of a customer’s needs at the lowest possible cost.
9. Process benchmarking is concerned with how top-ranked companies achieve their results.
10. Results benchmarking creates the risk for a company to become stagnant.
11. Process benchmarking creates the risk for a company to become stagnant.
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13. A total quality system should place an emphasis on prevention and continuous improvement.
14. Total quality management requires that an organization analyze the costs and benefits of each of its
customer segments.
15. When implementing TQM, an organization should establish long-term relationships with preferred
suppliers.
16. When implementing TQM, an organization should establish long-term relationships with as many
suppliers as possible.
21. Replacing a product after it has been sold is an external failure cost.
24. Pareto analysis is frequently used to aid management in deciding where to concentrate quality
prevention cost dollars.
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25. The balanced scorecard can be used to provide information on quality in an organization.
26. Total quality management (TQM) requires the commitment of all individuals within an organization.
27. ISO 9000 registration is required for regulated products sold in the United States.
28. ISO 9000 registration is required for regulated products sold in the European Union.
COMPLETION
1. The quantity of good output generated from a specific of output during a time period is referred to as
______________________.
ANS: productivity
2. The process of investigating, comparing, and evaluating a company’s products or services against
those of other companies is referred to as ______________________.
ANS: benchmarking
3. A process in which an end product or service is examined using reverse engineering is referred to as
___________________________________.
4. A benchmarking process that is non-industry specific and focuses on how companies compete is
referred to as ___________________________________.
5. A benchmarking process that focuses on how best-in-class companies achieve their results is referred
to as ___________________________________.
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6. Costs that preclude product defects resulting from flaws in processing are referred to as
______________________________.
7. Costs of monitoring and compensating for mistakes not eliminated through prevention activities are
referred to as _____________________________________.
MULTIPLE CHOICE
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4. Which of the following can be used to indicate factors that slow down or cause unnecessary work in a
process?
a. activity analysis
b. total quality management
c. cost of quality
d. all of the above
ANS: A DIF: Easy OBJ: 16-1
5. Which of the following are undesirable from a consumer perspective but are frequently needed?
a. value-neutral activities
b. value-added activities
c. non-value-added activities
d. none of the above
ANS: C DIF: Easy OBJ: 16-1
7. __________ places the primary responsibility for quality on the maker or producer.
a. Pareto analysis
b. Quality control
c. Benchmarking
d. Activity analysis
ANS: B DIF: Easy OBJ: 16-1
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8. All attempts to reduce variability and defects in products reflect the implementation of
a. activity analysis.
b. statistical process control.
c. quality control.
d. control charts.
ANS: C DIF: Easy OBJ: 16-1
11. The addition or removal of product or service characteristics to satisfy additional needs, especially
price, reflect the ________ of a product or service.
a. value
b. grade
c. quality
d. durability
ANS: B DIF: Moderate OBJ: 16-1
13. Comparing the way a "best-in-class" company performs a specific activity (such as distribution) is
called
a. process benchmarking.
b. results benchmarking.
c. total quality management benchmarking.
d. SPC benchmarking.
ANS: A DIF: Easy OBJ: 16-2
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18. Benchmarking
a. yes no
b. no yes
c. yes yes
d. no no
19. Benchmarking does which of the following activities relative to a "best-in-class" (BIC) company?
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21. Which of the following is not a critical element in a total quality management system?
a. employee involvement
b. activity-based costing
c. continuous improvement
d. problem prevention emphasis
ANS: B DIF: Moderate OBJ: 16-3
22. A total quality system should be designed to promote a reorientation of thinking from an emphasis on
a. internal quality improvements to an emphasis on external benchmarking.
b. the planning process to an emphasis on the performance evaluation process.
c. inspection to an emphasis on prevention.
d. process benchmarking to an emphasis on results benchmarking.
ANS: C DIF: Moderate OBJ: 16-3
23. Which of the following is the first element of knowledge needed by a company wanting to pursue total
quality management?
a. what the company's customers want
b. who the company's customers are
c. how the company's processes are designed
d. what the components of the company's product are
ANS: B DIF: Easy OBJ: 16-3
25. A company will not achieve world-class status unless a quality focus
a. allows that company to achieve one or more major quality awards.
b. becomes an integral part of the organization's culture.
c. emphasizes the elimination of all quality costs for compliance and noncompliance.
d. has been mandated by management for workers to pursue.
ANS: B DIF: Easy OBJ: 16-3
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28. The number of product defects discovered by consumers is what kind of performance indicator?
a. yes no no yes
b. no yes no yes
c. no yes yes no
d. yes no no yes
a. no no
b. no yes
c. yes no
d. yes yes
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33. Recalls are fairly common events for automobile manufacturers. The costs of recalling and repairing a
car create
a. yes yes no
b. yes yes yes
c. no yes no
d. yes no yes
a. yes no no
b. no yes yes
c. yes yes no
d. yes yes yes
36. Management can decide where to concentrate its quality prevention dollars using
a. statistical process control charts.
b. just-in-time inventory systems.
c. a feedback loop.
d. Pareto analysis.
ANS: D DIF: Easy OBJ: 16-5
590
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38. A significant cost of quality that is not recorded in the accounting records is the
a. failure cost for a customer complaint center.
b. cost of reworking products to bring them up to specification.
c. opportunity costs of forgone future sales.
d. appraisal cost for product equipment.
ANS: C DIF: Easy OBJ: 16-5
39. A cost of quality report compares current period quality costs in specified categories to
a. last year's quality costs.
b. current period budgeted quality costs.
c. total quality costs for the period.
d. both a and b.
ANS: D DIF: Easy OBJ: 16-5
40. Which of the following is not one of the three objectives of a quality program?
a. Product quality should be consistent to always meet the purchaser's need(s).
b. A quality program should give management confidence that the quality is and will be at a
constant level.
c. A quality program should give customers confidence that the intended quality will be
achieved in products.
d. Product quality should always vary because customers change their wants and needs over
time.
ANS: D DIF: Moderate OBJ: 16-6
41. The most visible embodiment of total quality management in the United States is
a. being awarded the Deming Prize.
b. achieving ISO 9000 certification.
c. meeting industry standards.
d. receiving the Baldrige Award.
ANS: D DIF: Easy OBJ: 16-6
42. Which of the following are categories judged for the Baldrige Award?
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Variance Corporation
47. Refer to Variance Corporation. The profit lost by selling defective units not reworked is
a. $25,000.
b. $15,000.
c. $18,750.
d. $3,750.
ANS: D
250 units not reworked * $15 incremental difference = $3,750
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52. Refer to Variance Corporation. The profit lost by selling defective units to Greenstein Company totals
$1,440. The total rework cost for 700 units is $28,000. The difference between the profit earned on a
good unit and a defective unit is $12. How many total defective units did Variance Corporation
produce?
a. 120
b. 740
c. 736
d. 820
ANS: D
Defective units sold $1,440/$12 per unit 120 units
Units reworked 700 units
Total defective units 820 units
=======
53. Denison Company's cost of compliance is $58,000. Appraisal cost is $21,000 and failure cost is
$32,000. The company's total quality cost is
a. $53,000.
b. $79,000.
c. $90,000.
d. $111,000.
ANS: C
Cost of compliance $58,000
Failure cost 32,000
Total quality cost $90,000
======
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SHORT ANSWER
ANS:
Prevention costs are incurred to prevent product or service defects and decrease the number of
nonconforming units produced. These costs include items such as quality training programs, quality
reporting, quality audits, and quality circles. Raw material vendors are selected with the understanding
that all delivered materials meet acceptable quality limits.
Appraisal costs arise from determining whether products are in agreement with their specifications.
These costs include inspection of raw material, supervising appraisal
activities, and product acceptance or sampling finished batches to see if they meet specifications.
Failure costs make up the other two types of quality costs. Internal failure costs result when the
products don't meet specifications and must be reworked or discarded. These costs include scrap,
rework, retesting, and design changes. High-quality prevention should eliminate internal failure costs.
External failure costs occur when buyers note defects after delivery. These costs can be very high and
include lost sales from poor performance of the product, returns due to poor quality, warranties, and
product liability.
2. What is the relationship between the incurrence of the various types of quality costs and the quantity of
output that meets specification?
ANS:
As the number of conforming units increases, both types of failure costs decrease rapidly. To decrease
failure costs, more prevention costs must be incurred. Identifying defective products before they leave
the factory can decrease the external failure costs immensely. Although, such identification may
increase internal failure costs. A greater emphasis on prevention will decrease appraisal costs and also
failure costs. Thus, over time, overall quality costs will decrease.
ANS:
Continuous improvement is behavior that encourages employees, either production or service, to
perform their tasks better as time passes. Thus, because product or service quality levels improve,
continuous improvement is directly related to TQM. Employees are also encouraged to "group think"
and brainstorm in quality circles to recognize and correct problems in the business environment.
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ANS:
TQM is a company-wide quality system that emphasizes employee involvement in improving product
or service quality throughout the firm. It uses a continuous improvement process that is always striving
to update upon the existing system. It uses techniques that encourage employees to make suggestions
about how the product or production process can be improved. TQM necessitates an internal
managerial system of decision making, controlling, and planning. TQM involves continuous
improvement that exceeds customer/client expectations.
5. How do control charts mesh with the concept of total quality control (TQC)?
ANS:
Control charts are graphical, statistical presentations that identify occurrences of products or services
as to whether they fall within some measure of performance. Upper and lower limits of acceptability
are displayed on the chart. TQC expects all products to meet specifications. Thus, no measures of units
or services performed should exceed these limits.
6. Discuss the relationship between benchmarking and total quality management (TQM).
ANS:
TQM is a system of the organization that emphasizes continuous improvement processes that meet or
exceed customer quality expectations. It emphasizes quality principles throughout the firm.
Benchmarking is the process of investigating, comparing, and evaluating a company's processes,
products, and/or services against those of companies believed to be the "best in class." Benchmarking
stresses quality improvement by finding out how other firms are doing what you do better and
attempting to pattern your own processes after what these firms are doing and striving to improve
those processes. Benchmarking has been implemented by many firms that have adopted JIT and that
have insisted their suppliers do the same. These firms gain insight on how to follow JIT by
communicating with other firms.
ANS:
Results benchmarking is associated with quality but is concerned with whether the final product meets
product/service specifications. Process benchmarking focuses on practices of competitors or non-
competitors that are considered "best-in-class" and tries to adopt features with which the questioning
company has problems
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8. Discuss increased competition and improved problem solving skills as they relate to benchmarking.
ANS:
Increased competition and improved problem solving skills are two benefits of benchmarking.
Benchmarking helps companies become more competitive in their markets by examining what
competitors do in relation to organization practices. Once these differences are determined, the
organization will be in a better position to make changes that will help make the organization more
competitive. Benchmarking also increases problem-solving skills among employees in the
organization by providing a framework in which to operate more effectively. An increase in problem
solving ability should promote teamwork with the organization, which is critical to not only
benchmarking, but to total quality control.
ANS:
1. To dictate continuous improvement for an internal managerial system of planning,
controlling, and decision making for continuous improvement.
2. To require participation by everyone in the organization.
3. To focus on improving goods and services from the customer’s point of view.
4. To value long-term partnerships with suppliers.
PROBLEM
Cokesbury Corporation
1. Refer to Cokesbury Corporation. Compute the profit lost by selling defective units not reworked.
ANS:
Z = (D - Y) (P1 - P2 ) = (1,500 - 800)($50 - $30) = $14,000
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ANS:
R = (Y) (r) = (800) ($12) = $9,600
ANS:
W = (Dr) (w) = (200) ($20) = $4,000
ANS:
F = Z + R + W = $14,000 + $9,600 + $4,000 = $27,600
ANS:
T = K + A + F = $17,500 + $9,500 + $27,600 = $54,600
Seating Concepts
Seating Concepts has just finished its first year of business. Seating Concepts makes decorative
outdoor furniture. The firm manufactured 2,500 pieces of furniture during the year: 2,400 were sold at
garden centers for $456,000; 100 pieces were defective and could only be sold as scrap metal (25
pounds each and can be sold for $2.50 per pound). No defective units could be reworked. During the
year the following costs were incurred:
6. Refer to Seating Concepts. Compute the total profits lost by the company from selling scrap units
during its first year of operations.
ANS:
Price for good units: $456,000 ÷ 2,400 = $190
Price for defective units: $6,250* ÷ 100 = $ 62.50
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7. Refer to Seating Concepts. Compute the total quality cost incurred by the company during the first
year of operations.
ANS:
599