Deck 16: Quality, Time and the Balanced Scorecard

Question 1

What are costs incurred to prevent making products that do not conform to specifications known as?
Variant question

A)Prevention costs
B)Appraisal costs
C)Internal failure costs
D)External failure costs

Answer 1

A

Question 2

Answer the following questions using the information below:
Mount Tamborine Furniture manufactures high quality tables.Its varnishing department is fully automated and requires substantial inspection to keep the machines operating properly.An improperly varnished table is very expensive to correct.Inspection hours for the 10 000 tables varnished in September totalled 2500 hours by 16 employees.Eight litres of varnish were used,on average,for each table.The standard amount of varnish per table is nine litres.The cost of inspection for September was equal to the budgeted amount of $76 000.
The $76 000 represents a(n):

A)internal failure cost.
B)possible cost-allocation base.
C)activity cost pool.
D)work-in-process control.

Answer 2

C

Question 3

Quality of design measures how closely the characteristics of products or services match the needs and wants of customers.Conformance quality:

A)focuses on fitness of uses from a customer perspective.
B)measures the same things.
C)is the performance of a product or service according to design and product specifications.
D)is making the product according to design,engineering and manufacturing specifications.

Answer 3

C

Question 4

The two basic aspects of quality are quality of design and conformance quality.Define and give an example of each.

Question 5

What is a liability claim an example of?
Variant

A)Prevention costs
B)Appraisal costs
C)Internal failure costs
D)External failure costs

Question 6

Spoilage is an example of:

A)prevention costs.
B)appraisal costs.
C)internal failure costs.
D)external failure costs.

Question 7

Conformance quality is the performance of a product or service relative to its design and product specifications.

Question 8

What is scrap an example of?
Variant question

A)Prevention costs
B)Appraisal costs
C)Internal failure costs
D)External failure costs

Question 9

What are costs incurred to find a nonconforming product before it is shipped to customers known as?
Variant question

A)Prevention costs
B)Appraisal costs
C)Internal failure costs
D)External failure costs

Question 10

Which of the following fail to satisfy conformance quality?

A)Machines that break down
B)Machines that fail to meet the needs of customers
C)Depositing a customer's cheque into the correct account
D)All of these answers are correct

Question 11

Examples of opportunity costs include:

A)forgone contribution margin.
B)lost sales.
C)lower production.
D)All of these answers are correct.

Question 12

Shortening delivery times is a minor part of the quality improvement process.

Question 13

Cost of quality reports usually do not consider:

A)internal failure costs.
B)opportunity costs.
C)external failure costs.
D)appraisal costs.

Question 14

Design engineering is an example of:

A)prevention costs.
B)appraisal costs.
C)internal failure costs.
D)external failure costs.

Question 15

The largest COQ items are frequently those related to:

A)prevention.
B)internal failure.
C)appraisal.
D)external failure.

Question 16

What is the inspection cost per unit?

A)$3800
B)$7.60
C)$30.40
D)$4000

Question 17

'Design quality' refers to the performance of a product or service relative to its design and product specification.

Question 18

The cost of quality measure has all of the following advantages EXCEPT:

A)being in existence in almost every production circumstance.
B)being a useful measure of comparing different quality improvement projects.
C)focusing on how costly poor quality can be.
D)serving as a common denominator for evaluating trade-offs among prevention and failure costs.

Question 19

Costs incurred to find individual units of products that do not conform to specifications are:

A)prevention costs.
B)appraisal costs.
C)internal failure costs.
D)external failure costs.

Question 20

Preventive equipment maintenance is an example of:

A)prevention costs.
B)appraisal costs.
C)internal failure costs.
D)external failure costs.

Question 21

When using a control chart,when would a manager NOT investigate an activity?
Variant question

A)Some observations are outside the preset range.
B)Almost all observations are within the range of two standard deviations.
C)All observations are outside the preset range.
D)All observations are within the range of preset standard deviations.

Question 22

With control charts,observations that fall outside the control limits are regarded as __________ and worth investigating.

A)random
B)non-random
C)costly
D)strategic

Question 23

Costs of Quality (COQ)are classified into four categories: prevention costs,appraisal costs,inspection costs and warranty costs.

Question 24

Carpentaria Language School produces CDs and DVDs to teach English as a Second Language to new migrants.Carpentaria has just prepared a Cost of Quality Report which shows a decline in prevention costs as a percentage of total sales over a three-year period.What changes might Carpentaria expect to see in
(i)appraisal costs as a percentage of sales,
(ii)internal failure costs as a percentage of sales,and
(iii)external failure costs as a percentage of sales
given this trend?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 25

Quality of design measures how closely the characteristics of products or services meet the needs and wants of customers.

Question 26

A company that doesn't invest in quality improvement while competitors are doing so is likely to suffer a decline in its market share,revenues and profits,even to the extent of losses.

Question 27

In the banking industry,depositing a customer's cheque into the wrong bank account is an example of quality of design failure.

Question 28

Most companies spend a large amount of money measuring the financial costs of design quality.

Question 29

The costs relating to product testing are classified as prevention costs.

Question 30

Managers must improve ________________ business processes because they affect many of the quality-related factors that influence customer satisfaction and improve financial performance.

A)external
B)strategic
C)internal
D)customer

Question 31

What is the tool which indicates how frequently each type of defect occurs?
Variant question

A)Cause-and-effect diagram
B)Pareto diagram
C)Control chart
D)Fishbone diagram

Question 32

Allocated cost amounts are an important determinant of the costs of a quality improvement program.

Question 33

A quality improvement program is very costly to implement across a large corporation.Why do they do it? Explain.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 34

Observations outside control limits serve as inputs for _________ diagrams.

A)fishbone
B)Six Sigma
C)control
D)Pareto

Question 35

The costs relating to new materials testing are classified as appraisal costs.

Question 36

The largest COQ items are frequently those related to external failure,which comprises mainly the opportunity costs of the contribution margin and profit forgone from lost sales,lost production and lower prices resulting from poor quality.

Question 37

A tool which identifies potential causes of failures or defects is a:

A)control chart.
B)cause-and-effect diagram.
C)Pareto diagram
D)None of these answers are correct.

Question 38

To implement ___________,companies use techniques such as control charts,Pareto diagrams and cause-and-effect diagrams to define,measure,analyse,improve and control processes to minimise variability in manufacturing and achieve almost zero defects.

A)Six Sigma
B)Pareto
C)fishbones
D)control charts

Question 39

Briefly explain how a manufacturer of personal computers such as Dell Computer can benefit from the introduction of a quality improvement program.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 40

Costs of quality (COQ)reports usually do not consider opportunity costs.

Question 41

Answer the following questions using the information below:
Barossa Manufacturing expects to spend $500 000 in 2018 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 $50 000 in fixed appraisal costs and variable costs of $0.50 per unit of finished product.The new method involves $70 000 in training costs and an additional $170 000 in annual equipment rental.It takes four units of material for each finished product.
Internal failure costs average $80 per failed unit of finished goods.During 2013,5% of all completed items had to be reworked.External failure costs average $200 per failed unit.The company's average external failures is 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.
What is the net effect on appraisal costs for 2018,assuming the new receiving method is implemented and that 800 000 material units are received?

A)$20 000 increase
B)$240 000 increase
C)$220 000 decrease
D)$20 000 decrease

Question 42

Answer the following questions using the information below:
Barossa Manufacturing expects to spend $500 000 in 2018 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 $50 000 in fixed appraisal costs and variable costs of $0.50 per unit of finished product.The new method involves $70 000 in training costs and an additional $170 000 in annual equipment rental.It takes four units of material for each finished product.
Internal failure costs average $80 per failed unit of finished goods.During 2013,5% of all completed items had to be reworked.External failure costs average $200 per failed unit.The company's average external failures is 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.
How much will internal failure costs change,assuming 800 000 units of materials are received and that the new receiving method reduces the amount of unacceptable product units in the manufacturing process by 10%?

A)$25 000 decrease
B)$170 000 decrease
C)$80 000 decrease
D)$20 000 increase

Question 43

Management accountants are usually not responsible for maintaining and presenting non-financial measures.

Question 44

Discuss the methods used to identify quality problems.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 45

An example of a non-financial balanced scorecard measure concerning internal business processes would be average manufacturing time for key products.

Question 46

When considering customer needs and wants,only financial measures can be used because they are easily measured.

Question 47

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?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 48

Answer the following questions using the information below:
Nurioopta Products has a budget of $900 000 in 2018 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $65 000 in variable costs.The new method will require $24 000 in training costs and $110 000 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 170 000 units.
Appraisal costs for the year are budgeted at $600 000.The new prevention procedures will save appraisal costs of $30 000.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.
What is the net change in the budget of prevention costs if the procedures are automated in 2018? Will management agree with the changes?

A)$134 000 increase,no
B)$69 000 increase,yes
C)$65 000 increase,no
D)$65 000 decrease,yes

Question 49

Critics of Six Sigma argue that it emphasises incremental rather than dramatic or disruptive innovation.

Question 50

Answer the following questions using the information below:
Barossa Manufacturing expects to spend $500 000 in 2018 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 $50 000 in fixed appraisal costs and variable costs of $0.50 per unit of finished product.The new method involves $70 000 in training costs and an additional $170 000 in annual equipment rental.It takes four units of material for each finished product.
Internal failure costs average $80 per failed unit of finished goods.During 2013,5% of all completed items had to be reworked.External failure costs average $200 per failed unit.The company's average external failures is 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.
How much will external failure costs change assuming 800 000 units of materials are received and that product failures with customers are cut in half with the new receiving method?

A)$500 000 decrease
B)$200 000 decrease
C)$10 000 increase
D)$320 000 decrease

Question 51

The balanced scorecard includes both financial and non-financial measures of customer satisfaction.

Question 52

Managers must improve internal business processes because they affect many of the quality-related factors that influence customer satisfaction and improve financial performance.

Question 53

Answer the following questions using the information below:
Nurioopta Products has a budget of $900 000 in 2018 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $65 000 in variable costs.The new method will require $24 000 in training costs and $110 000 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 170 000 units.
Appraisal costs for the year are budgeted at $600 000.The new prevention procedures will save appraisal costs of $30 000.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.
How much will appraisal costs change assuming the new prevention methods reduce material failures by 40% in the appraisal phase?

A)$12 000 decrease
B)$65 000 increase
C)$30 000 decrease
D)$240 000 decrease

Question 54

Regarding the means by which relevant costs and benefits are evaluated when evaluating quality improvement,the key question is:

A)Will the employees of the company be able to implement the change?
B)How long will it take for the improvement program to be fully functional?
C)How will total costs and total revenues change under each alternative solution?
D)Which alternative solution will make the customer happiest?

Question 55

Three tools used to detect quality problems include control charts,Pareto charts and cause-and-effect diagrams.Briefly explain each of these tools.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 56

The number of defects shipped to customers as a percentage of total units shipped is a type of non-financial quality measure.

Question 57

Observations outside control limits serve as inputs for Pareto diagrams.

Question 58

The Custom Shirt House is concerned about its declining sales,especially the reduction in the number of customers despite that its shirts have won industry awards for high quality and trend-setting styles.At the latest executive managers' meeting,everyone was blaming everyone else 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?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 59

A control chart identifies potential causes of failures or defects.

Question 60

A cause-and-effect diagram is used to help identify potential causes of defects.

Question 61

In which perspective of the balanced scorecard,reported COQ numbers are affected for making improvements in internal business processes?
Variant question

A)Financial
B)Customer
C)Internal process
D)Learning

Question 62

Answer the following questions using the information below:
Mildura Products has a budget of $1 200 000 in 2018 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $75 000 in variable costs.The new method will require $24 000 in training costs and $145 000 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 210 000 units.
Appraisal costs for the year are budgeted at $500 000.The new prevention procedures will save appraisal costs of $35 000.Internal failure costs average $20 per failed unit of finished goods.The internal failure rate is expected to be 4% of all completed items.The proposed changes will cut the internal failure rate by one-half.Internal failure units are destroyed.External failure costs average $48 per failed unit.The company's average external failures average 2.5% of units sold.The new proposal will reduce this rate to 1%.Assume all units produced are sold and there are no ending inventories.
What is the net change in the budget of prevention costs if the procedures are automated in 2018? Will management agree with the changes?

A)$75 000 increase,no
B)$75 000 decrease,yes
C)$94 000 decrease,yes
D)$94 000 increase,yes

Question 63

Which of the following is an example of non-financial measures of quality?
Variant question

A)Percentage of defective units shipped to customers as a percentage of total units shipped
B)Percent of products that experience early or excessive failure
C)Number of customer complaints
D)All of these answers are correct.

Question 64

Answer the following questions using the information below:
Mildura Products has a budget of $1 200 000 in 2018 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $75 000 in variable costs.The new method will require $24 000 in training costs and $145 000 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 210 000 units.
Appraisal costs for the year are budgeted at $500 000.The new prevention procedures will save appraisal costs of $35 000.Internal failure costs average $20 per failed unit of finished goods.The internal failure rate is expected to be 4% of all completed items.The proposed changes will cut the internal failure rate by one-half.Internal failure units are destroyed.External failure costs average $48 per failed unit.The company's average external failures average 2.5% of units sold.The new proposal will reduce this rate to 1%.Assume all units produced are sold and there are no ending inventories.
How much will internal failure costs change if the internal product failures are reduced by 50% with the new procedures?

A)$84 000 increase
B)$126 000 decrease
C)$84 000 decrease
D)$168 000 decrease

Question 65

Answer the following questions using the information below:
Nurioopta Products has a budget of $900 000 in 2018 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $65 000 in variable costs.The new method will require $24 000 in training costs and $110 000 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 170 000 units.
Appraisal costs for the year are budgeted at $600 000.The new prevention procedures will save appraisal costs of $30 000.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.
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)$137 700 decrease
B)$243 000 decrease
C)$137 700 increase
D)None of these answers are correct.

Question 66

Manufacturing cycle efficiency relates to ________________ activities.

A)production
B)sales
C)production and sales
D)strategic

Question 67

Without ________________ quality measures,quality problems might not be identified until it is too late.

A)non-financial
B)throughput
C)financial
D)balanced

Question 68

Without non-financial quality measures,quality problems might not be identified until it is too late.

Question 69

COQ measures assist in problem solving by comparing costs and benefits of different quality-improvement programs and setting priorities for cost reduction.

Question 70

Cost of quality financial measures will usually deteriorate when non-financial measures of quality are emphasised and improved.

Question 71

Answer the following questions using the information below:
Mildura Products has a budget of $1 200 000 in 2018 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $75 000 in variable costs.The new method will require $24 000 in training costs and $145 000 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 210 000 units.
Appraisal costs for the year are budgeted at $500 000.The new prevention procedures will save appraisal costs of $35 000.Internal failure costs average $20 per failed unit of finished goods.The internal failure rate is expected to be 4% of all completed items.The proposed changes will cut the internal failure rate by one-half.Internal failure units are destroyed.External failure costs average $48 per failed unit.The company's average external failures average 2.5% of units sold.The new proposal will reduce this rate to 1%.Assume all units produced are sold and there are no ending inventories.
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)$(125 200)
B)$(176 200)
C)$176 200
D)$(270 200)

Question 72

Answer the following questions using the information below:
Mildura Products has a budget of $1 200 000 in 2018 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $75 000 in variable costs.The new method will require $24 000 in training costs and $145 000 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 210 000 units.
Appraisal costs for the year are budgeted at $500 000.The new prevention procedures will save appraisal costs of $35 000.Internal failure costs average $20 per failed unit of finished goods.The internal failure rate is expected to be 4% of all completed items.The proposed changes will cut the internal failure rate by one-half.Internal failure units are destroyed.External failure costs average $48 per failed unit.The company's average external failures average 2.5% of units sold.The new proposal will reduce this rate to 1%.Assume all units produced are sold and there are no ending inventories.
Many companies believe that they should eliminate all failure costs and have ____________ defects.

A)minimal
B)controllable
C)zero
D)primary

Question 73

Making improvements in internal business processes affects the COQ numbers reported in the financial perspective of the balanced scorecard.

Question 74

Answer the following questions using the information below:
Nurioopta Products has a budget of $900 000 in 2018 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $65 000 in variable costs.The new method will require $24 000 in training costs and $110 000 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 170 000 units.
Appraisal costs for the year are budgeted at $600 000.The new prevention procedures will save appraisal costs of $30 000.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.
How much will internal failure costs change if the internal product failures are reduced by 50% with the new procedures?

A)$38 250 decrease
B)$750 000 decrease
C)$76 500 decrease
D)$500 000 decrease

Question 75

An important difference between financial measures of quality and non-financial measures of quality is that:

A)financial measures of quality tend to be useful indicators of future long-term performance,while non-financial measures have more of a short-term focus.
B)non-financial measures are generally too subjective to have any long-term value.
C)non-financial 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.
D)None of these answers are correct.

Question 76

Without financial quality measures,companies could be spending more money on improving non-financial quality measures than it is worth.

Question 77

Answer the following questions using the information below:
Mildura Products has a budget of $1 200 000 in 2018 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $75 000 in variable costs.The new method will require $24 000 in training costs and $145 000 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 210 000 units.
Appraisal costs for the year are budgeted at $500 000.The new prevention procedures will save appraisal costs of $35 000.Internal failure costs average $20 per failed unit of finished goods.The internal failure rate is expected to be 4% of all completed items.The proposed changes will cut the internal failure rate by one-half.Internal failure units are destroyed.External failure costs average $48 per failed unit.The company's average external failures average 2.5% of units sold.The new proposal will reduce this rate to 1%.Assume all units produced are sold and there are no ending inventories.
How much do external failure costs change if all the changes are as the new prevention procedures anticipated? Assume all units produced are sold and there are no ending inventories.

A)$126 000 decrease
B)$151 200 decrease
C)$100 800 decrease
D)None of these answers are correct.

Question 78

Answer the following questions using the information below:
Nurioopta Products has a budget of $900 000 in 2018 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $65 000 in variable costs.The new method will require $24 000 in training costs and $110 000 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 170 000 units.
Appraisal costs for the year are budgeted at $600 000.The new prevention procedures will save appraisal costs of $30 000.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.
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)$(121 500)
B)$69 000
C)$(136 950)
D)$(33 750)

Question 79

Answer the following questions using the information below:
Mildura Products has a budget of $1 200 000 in 2018 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $75 000 in variable costs.The new method will require $24 000 in training costs and $145 000 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 210 000 units.
Appraisal costs for the year are budgeted at $500 000.The new prevention procedures will save appraisal costs of $35 000.Internal failure costs average $20 per failed unit of finished goods.The internal failure rate is expected to be 4% of all completed items.The proposed changes will cut the internal failure rate by one-half.Internal failure units are destroyed.External failure costs average $48 per failed unit.The company's average external failures average 2.5% of units sold.The new proposal will reduce this rate to 1%.Assume all units produced are sold and there are no ending inventories.
How much will appraisal costs change assuming that the new prevention methods reduce material failures by 30% in the appraisal phase?

A)$35 000 increase
B)$150 000 decrease
C)$229 000 decrease
D)$35 000 decrease

Question 80

Non-financial methods and measures are useful indicators of long-term future performance (e.g.through measures of customer satisfaction and employee satisfaction).