Exam 19: Balanced Scorecard: Quality, Time, and the Theory of Constraints

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

Customer-response time is a measure of how long it takes for the customer to return a call.

Internal failure costs are costs incurred on defective products after they have been shipped to customers

Answer the following questions using the information below: 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 200 units. All units produced can be sold. The cost of operating the photo production department four more hours each day is $1,250. The contribution margin of the finished products is $10 each. -What is the change in the daily contribution margin if the change is made?

Answer the following questions using the information below: Tri-State Manufacturing expects to spend $800,000 in 2012 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 $80,000 in fixed appraisal costs and variable costs of $0.40 per unit of finished product. The new method involves $120,000 in training costs and an additional $160,000 in annual equipment rental. It takes two units of material for each finished product. Internal failure costs average $160 per failed unit of finished goods. During 2011, 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. -In the formula to calculate the average waiting time, the manufacturing time is squared because:

Acme Janitor Service has always taken pride in the fact that it had one of the highest customer response times in the home cleaning service industry. However, as the products manufactured for this industry have become more complex, the company's customer response time has declined. Required: Why do you think that response time declined if all other quality factors have remained the same?

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

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

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

When using a control chart, a manager does NOT investigate the activity when:

Answer the following questions using the information below: Dylan Products has a budget of $1,200,000 in 2011 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs. The new method will require $40,000 in training costs and $150,000 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 $50,000. 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?

Answer the following questions using the information below: Tri-State Manufacturing expects to spend $800,000 in 2012 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 $80,000 in fixed appraisal costs and variable costs of $0.40 per unit of finished product. The new method involves $120,000 in training costs and an additional $160,000 in annual equipment rental. It takes two units of material for each finished product. Internal failure costs average $160 per failed unit of finished goods. During 2011, 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. -Any factor where a change in the factor causes a change in the speed with which an activity is undertaken is referred to as:

A machine has been identified as a bottleneck and the source of the constraint for a manufacturing company that has multiple products and multiple machines. Discuss ways the company can overcome the bottleneck.

Answer the following questions using the information below: Dylan Products has a budget of $1,200,000 in 2011 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs. The new method will require $40,000 in training costs and $150,000 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 $50,000. 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 2011? Will management agree with the changes?

Discuss the methods used to identify quality problems.

Norton's Convenience store has a variable demand. The daily demand ranges from 270 to 330 customers a day who average purchasing 5 items each. The average daily demand is 300 customers. The convenience store currently operates 12 hours a day. Each order takes approximately 2 minutes. Required: a. What is the average customer waiting time, in minutes? b. What is the cycle time for an order? c. Norton has decided that the waiting time is too long and has increased the hours the store is open to 15 hours. What is the waiting time now?

Which of the following FAIL to satisfy conformance quality?

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?

The financial cost of quality measures serves as a common denominator for evaluating trade-offs among prevention costs and failure costs.

Answer the following questions using the information below: LaCrosse Products has a budget of $900,000 in 2012 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. -What is the net change in the budget of prevention costs if the procedures are automated in 2012? Will management agree with the changes?