Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 48

Taguchi Loss Function Analysis (Appendix) North Platt Machinery Company manufactures a shaft that must fit inside a sleeve. The firm has just received an order of 50,000 units from South-ernstar Exploration Company for $80 per unit. North Platt can manufacture the shaft at $50 per unit. Southernstar desires the diameter of the shaft to be 1.275 cm. The diameter of the shaft must not be less than 1.25 cm, in order to fit properly inside the sleeve. To be able to insert the shaft into a sleeve without the use of force, the diameter cannot be larger than 1.30 cm. A defective shaft is discarded and a replacement has to be shipped via express freight to locations around the world. North Platt estimates that the average cost of handling and shipping a replacement shaft will be approximately $70. Shown below are the diameters from a sample of 80 shafts manufactured during a trial run.

Diameter	Number of Units	Diameter	Number of Units	Diameter	Number of Units
1.232	1	1.273	6	1.292	2
1.240	2	1.274	7	1.293	1
1.250	3	1.275	18	1.294	4
1.258	2	1.276	8	1.298	2
1.262	2	1.277	5	1.300	2
1.270	3	1.280	2	1.304	1
1.272	6	1.288	2	1.320	1

Required Set up an Excel spreadsheet that uses a Taguchi loss function to determine:

1. The expected loss from this process.

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2. The diameter tolerance that should be set for the manufacture of the shaft.

Step 1 of 2

Management and Control of Quality

Quality is explained as a term associated with customer satisfaction. It is the total level of satisfaction any customer gets from any organization’s products or service. There are two components of quality- Design Quality and Performance Quality. There are various approaches to setting quality related expectations and among those alternatives one is the Cost of Quality (COQ) Reporting. It provides relevant cost and revenue data used for decision-making purposes.