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

A measurement of market share is considered a financial measure of customer satisfaction.

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. -Nonfinancial measures of quality are of limited use by themselves. They are more informative when they are:

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?

Write a paragraph outlining how a manufacturer of personal computers such as Dell Computer can benefit from the introduction of a quality improvement program.

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. -The amount of time from when an order is ready to start on the production line to when it becomes a finished good is referred to as:

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 cycle time for an order?

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

In the theory of constraints, the only direct costs are:

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 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.

The average waiting time is the average amount of time an order will wait at the company's shipping office before it is sent to the customer.

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

Dawn and Kim just bought a bed and breakfast inn at a very attractive price. The business had been doing poorly. Before they reopened the inn for business, they attended a seminar on operating a high quality business. Now that they are ready to open the inn, they need some advice on quality costs and management. Required: Identify four categories of quality costs. In addition, identify three items that would be classified in each of the categories.

A control chart identifies potential causes of failures or defects.

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

The theory of constraints describes methods to maximize operating income when faced with some bottleneck and some nonbottleneck operations.

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. -For a fast-food restaurant, the average waiting time might be formulated as:

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. -What is the cycle time for an order?

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 total production per day if the change is made?

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

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. -Kay plans to add doors to its product line and anticipates that they will average 5 doors per day. Each door takes 12 minutes to install. What is the average waiting time, in minutes, if Kay continues to be the only worker?