Exam 19: Balanced Scorecard: Quality and Time

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.

Ventaz Corp manufactures glasses. The manufacturing cycle efficiency is 75%. What is its waiting time if the manufacturing lead time is 136 minutes per keyboard?

Which of the following types of costs are incurred in precluding the production of products that do not conform to specifications?

Spoilage, rework, scrap, and machine repairs are all examples of ________.

Wilson's Language School manufactures CDs and DVDs to teach English as a Second Language. Wilson has just prepared a Cost of Quality Report, and the staff has noticed a decline in prevention costs as a percentage of total sales over a three-year period. What changes might Wilson expect to see in appraisal costs as a percentage of sales, internal failure costs as a percentage of sales, and external failure costs as a percentage of sales given this trend?

Brown Laundry has a variable demand. The daily demand ranges from 100 to 140 customers a day with an average of 5 items. The average daily demand is 110 customers. The laundry operates 10 hours a day. Each order takes approximately 5 minutes. Required: a.What is the average customer waiting time, in minutes? b.What is the cycle time for an order? c.The manager has decided that the waiting time is too long and has increased the workday to 11 hours. What is the waiting time now? Will the customers be any happier?

LaCrosse Products has a budget of $903,000 in 2017 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $80,200 in variable costs. The new method will require $40,800 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 151,000 units. Appraisal costs for the year are budgeted at $609,000. The new prevention procedures will save appraisal costs of $50,400. 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 $58 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? (Note: numbers shown as (negatives ) represent net savings and positive numbers represent net cost.)

The last step of the five-step decision making process is implementing the decision, evaluating performance, and learning. How can a balanced scorecard play a role in helping to assure this final step will be successful?

Captain Carl's Seascapes produces sea pictures for sale through catalogs. The company has two workstations, photo production and framing. The photo production station is limited by the speed of operating the photo development machine. Framing is limited by the speed of the employees. Framing normally waits for work from photo production. Each department works an eight-hour day. If Captain Carl's Seascapes adds an earlier half shift so that photo production begins work four hours earlier than framing each day, the two departments generally finish their work at about the same time. Not only does this eliminate the bottleneck, but it also increases finished units produced each day by 220 units. All units produced can be sold. The cost of operating the photo production department four more hours each day is $1250. The contribution margin of the finished products is $20 each. What is the total production per day if the change is made?

Increasing the capacity of a bottleneck resource increases manufacturing cycle times and delays.

Ventaz Corp manufactures small windows for back yard sheds. Historically, its demand has ranged from 30 to 50 windows per day with an average of 41. Alex is one of the production workers and he works eight hours a day, five days a week. Each order is one window and each window takes 10 minutes. What is the cycle time for an order?

Premier Corp expects to spend $800,900 in 2017 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 $60,500 in fixed appraisal costs and variable costs of $0.50 per unit of finished product. The new method involves $140,500 in training costs and an additional $150,300 in annual equipment rental. Internal failure costs average $250 per failed unit of finished goods. During 2016, 6% of all completed items had to be reworked. External failure costs average $450 per failed unit. The company's average external failures are 2% 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 would be the change in the external failure budget, if 600,300 units are used and assuming external failures are reduced by 12%.

One of the most direct financial measures of quality is the costs of quality.

Costs of quality (COQ) reports usually consider opportunity costs.

When considering how well a company is doing keeping customers happy and understanding their needs and wants, financial and nonfinancial measures can be used.

LaCrosse Products has a budget of $900,000 in 2017 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $81,000 in variable costs. The new method will require $41,000 in training costs and $109,000 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 155,000 units. Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $50,200. Internal failure costs average $18 per failed unit of finished goods. The internal failure rate is expected to be 2% 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 $50 per failed unit. The company's average external failures average 2% of units sold. The new proposal will reduce this rate by 45%. Assume all units produced are sold and there are no ending inventories. What is the net change in the budget for prevention costs if the procedures are automated in 2017? Will management agree with the changes?

Discuss the methods used to identify quality problems.

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 2018, it has budgeted $1,000,000 for prevention costs and $900,000 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 2018 budget for a new method of testing products. If management decides to implement the new method, $1.50 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 2017? 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)?

Which of the following is true of a bottleneck?

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