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

Answer the following questions using the information below: The tool crib at a large manufacturing company is responsible for providing tools to the factory workers on demand. The tool crib has a variable demand. Historically, its demand has ranged from 300 to 500 small tools per day with an average of 400. Diane, the tool crib attendant, works eight hours a day, five days a week. Each order is for one small tool and each small tool takes Diane 1 minute to retrieve from the bins. -Diane has been asked to consider plans to add the retrieval of larger tooling fixtures to her duties. She anticipates that there would be an average of 12 tooling fixtures per day requested. Each tooling fixture would take Diane 4 minutes to retrieve. What is the average waiting time, in minutes, if Diane continues to be the only worker that would retrieve the small tools as well as the larger tooling fixtures?

Design Products is committed to its quality program. It works with all areas of the company to establish sound quality programs within reasonable budget guidelines. For 2011, it has budgeted $1,000,000 for prevention costs and $700,000 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 2011 budget for a new method of testing products. If management decides to implement the new method, $2 per unit of appraisal costs will be saved, up to a level of 200,000 tests. No additional savings are expected past the 200,000 level. The new method involves $90,000 in training costs and $60,000 in yearly testing supplies. Traditionally, 3% 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 2011? b. How much do internal failure costs change, assuming 600,000 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)?

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. -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?

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?

Statistical quality control includes a control chart that:

Answer the following questions using the information below: Kay's Window Company has a variable demand. Historically, its demand has ranged from 20 to 40 windows per day with an average of 30. Kay Ballard works eight hours a day, five days a week. Each order is one window and each window takes 13 minutes. -What is the average waiting time, in minutes?

Throughput contribution equals revenues minus:

The Alpha Beta Corporation experiences numerous instances of constraints hindering the effective operation of their manufacturing process. Identify the methods that might be used to maximize operating income, and minimize the effect of the constraints.

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. -________ is an operation where the work to be performed approaches or exceeds the available capacity.

Design engineering is an example of:

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. -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%?

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. -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?

Warranty costs are an example of internal failure costs.

Manufacturing lead time is the sum of waiting time and manufacturing time for an order.

An example of a nonfinancial measure for customer satisfaction is:

ISO 9000 developed by the International Organization for Standardization is a set of five international standards for quality management adopted by more than 85 countries.

The theory of constraints is used for cost analysis when:

When evaluating alternatives to improve quality, both the relevant benefits as well as the relevant costs should be considered.

Preventive equipment maintenance is an example of:

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. -The Glass Shop, a manufacturer of large windows, is experiencing a bottleneck in its plant. Setup time at one of its workstations has been identified as the culprit. A manager has proposed a plan to reduce setup time at a cost of $72,000. The change will result in 8,000 additional windows. The selling price per window is $18, direct labor costs are $3 per window, and the cost of direct materials is $5 per window. Assume all units produced can be sold. The change will result in an increase in the throughput contribution of: