BCSV

Implementing Quality Concepts

Part I. THEORIES

A. True or False

1. Productivity is measured by the quantity of good output generated

from a specific amount of input during a time period.
2. Inspection of incoming inventory is a value-adding activity.
3. Storage of unneeded inventory is a non-value added item.
4. Quality control places the primary responsibility for product or service
quality on the provider.
5. Grade refers to a product meeting the highest number of a customers
needs at the lowest possible cost.
6. Grade refers to one of many quality levels that a product or service has
relative to the inclusion or exclusion of certain characteristics to satisfy
customer needs.
7. Value refers to a product meeting the highest number of a customers
needs at the lowest possible cost.
8. Strategic benchmarking is industry specific in its approach.
9. Process benchmarking is concerned with how top-ranked companies
achieve their results.
10. Results benchmarking creates the risk for a company to become
stagnant.
11. Process benchmarking creates the risk for a company to become
stagnant.
12. A total quality system should place an emphasis on inspection.
13. A total quality system should place an emphasis on prevention and
continuous improvement
14. Total quality management requires that an organization analyze the
costs and benefits of each of its customer segments.
15. When implementing TQM, an organization should establish long-term
relationships with preferred suppliers.
16. When implementing TQM, an organization should establish long-term
relationships with as many suppliers as possible.
17. Reworking a product is an appraisal cost.
18. Reworking a product is an internal failure cost.
19. Testing and adjusting manufacturing equipment is a prevention cost.
20. Testing and adjusting manufacturing equipment is an appraisal cost.
21. Replacing a product after it has been sold is an external failure cost.
22. Conducting a quality audit is an appraisal cost.
23. Conducting a quality audit is a prevention cost.
24. Pareto analysis is frequently used to aid management in deciding
where to concentrate quality prevention cost dollars.
25. The balanced scorecard can be used to provide information on quality
in an organization.

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26. Total quality management (TQM) requires the commitment of all

individuals within an organization.
27. ISO 9000 registration is required for regulated products sold in the
United States.
28. ISO 9000 registration is required for regulated products sold in the
European Union.

B. Multiple Choice

1. An all-inclusive definition of quality views it as the ability of products/services

to
a. only meet internal design specifications.
b. meet the customer's stated or implied needs.
c. be produced using all value-added production activities.
d. be produced with no rework costs.

2. Which of the following is false as it relates to quality?

a. Quality is the total of all characteristics of a product or service
that impacts on its ability to meet the needs of a specific person.
b. Quality must always be viewed from the user's perspective.
c. Quality is never concerned with what the user thinks, feels, or
deems important.
d. The definition of quality has evolved through time and is more
currently comprehensive than in the past.

3. Productivity is measured by the

a. total quantity of output generated from a limited amount of input
during a time period.
b. quantity of good output generated from a specific amount of
input during a time period.
c. quantity of good output generated from the quantity of good
input used during a time period.
d. total quantity of input used to generate total quantity of output
for a time period.

4. Which of the following can be used to indicate factors that slow down or
cause unnecessary work in a process?
a. activity analysis
b. total quality management
c. cost of quality
d. all of the above

5. Which of the following are undesirable from a consumer perspective but are
frequently needed?
a. value-neutral activities
b. value-added activities

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c. non-value-added activities
d. none of the above

6. Which of the following would typically be viewed as non-value-added

activities?

Moving Inspecting Attaching Storing

product
material raw components finished
material goods

a. yes yes yes

no
b. no no no
yes
c. no yes no
yes
d. yes yes no
yes

7. __________ places the primary responsibility for quality on the maker or

producer.
a. Pareto analysis
b. Quality control
c. Benchmarking
d. Activity analysis

8. All attempts to reduce variability and defects in products reflect the

implementation of
a. activity analysis.
b. statistical process control.
c. quality control.
d. control charts.

9. Control charts are appropriate devices in

a. total quality control.
b. statistical process control.
c. total quality management.
d. all of the above.

10. A control chart graphs

a. actual process results relative to a range of acceptable variation.
b. expected process results relative to upper and lower control
limits.
c. actual process results relative to value-added and non-value-
added activities.

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d. the cost of process malfunctions relative to the cost of reducing

process variations.

11. The addition or removal of product or service characteristics to satisfy

additional needs, especially price, reflect the ________ of a product or service.
a. value
b. grade
c. quality
d. durability

12. Value reflects the ability of a product to

a. provide the best quality at any price.
b. have all possible product and service characteristics.
c. meet the majority of a customer's needs at the lowest possible
price.
d. have the longest technical or service life and the best warranty.

13. Comparing the way a "best-in-class" company performs a specific activity

(such as distribution) is called
a. process benchmarking.
b. results benchmarking.
c. total quality management benchmarking.
d. SPC benchmarking.

14. Benchmarking allows a company to

a. identify its strengths and weaknesses.
b. imitate those ideas that are readily transferable.
c. improve on methods in use by others.
d. all of the above.

15. Benchmarking against direct competitors creates the risk of

a. creating products or services with identical specifications.
b. becoming stagnant relative to process improvements.
c. being taken over by the competitors to prevent a loss of ideas.
d. all of the above.

16. Reverse engineering is used in

a. statistical process control.
b. process benchmarking.
c. results benchmarking.
d. price fixing.

17. Benchmarking against noncompetitors is extremely important in

a. process benchmarking.
b. results benchmarking.
c. reverse engineering.

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d. all of the above.

18. Benchmarking

identifies "best-in-class" analyzes the

companies "negative gap"

a. yes no
b. no yes
c. yes yes
d. no no

19. Benchmarking does which of the following activities relative to a "best-in-

class" (BIC) company?

Compares BIC's Copies BIC's Improves on

products and products and BIC's
processes processes products
with own directly and
processes

a. yes yes yes

b. yes no no
c. no no yes
d. yes no yes

20. Which of the following is not a step in benchmarking procedures?

a. analyze the "positive gap"
b. engage in continuous improvement
c. analyze the "negative gap"
d. identify "best-in-class" companies

21. Which of the following is not a critical element in a total quality

management system?
a. employee involvement
b. activity-based costing
c. continuous improvement
d. problem prevention emphasis

22. A total quality system should be designed to promote a reorientation of

thinking from an emphasis on
a. internal quality improvements to an emphasis on external
benchmarking.
b. the planning process to an emphasis on the performance
evaluation process.
c. inspection to an emphasis on prevention.

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d. process benchmarking to an emphasis on results benchmarking.

23. Which of the following is the first element of knowledge needed by a

company wanting to pursue total quality management?
a. what the company's customers want
b. who the company's customers are
c. how the company's processes are designed
d. what the components of the company's product are

24. Total quality management is inseparable from the concept of

a. ISO certification.
b. centralized organizational structure.
c. continuous improvement.
d. the product life cycle.

25. A company will not achieve world-class status unless a quality focus
a. allows that company to achieve one or more major quality
awards.
b. becomes an integral part of the organization's culture.
c. emphasizes the elimination of all quality costs for compliance and
noncompliance.
d. has been mandated by management for workers to pursue.

26. Which of the following statements is true?

a. The more customers a company has, the better off the company
is.
b. A company should spare no expense to provide customer
satisfaction.
c. Most customers stop doing business with a company because of
poor product or service quality.
d. Cost-benefit analysis can help identify customers that cost more
than they are worth to the company.

27. The four categories of product quality costs are

a. external failure, internal failure, prevention, and carrying.
b. external failure, internal failure, prevention, and appraisal.
c. external failure, internal failure, training, and appraisal.
d. warranty, product liability, training, and appraisal.

28. The number of product defects discovered by consumers is what kind of

performance indicator?

Qualitativ Quantitati Financia Nonfinanci

e ve l al

a. yes no no yes

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b. no yes no yes
c. no yes yes no
d. yes no no yes

29. Money spent on employee training is a

a. prevention cost.
b. appraisal cost.
c. empowerment cost.
d. Pareto cost.

30. Production quality is affected by

a. worker productivity.
b. the amount of failure costs incurred.
c. worker skill level.
d. just-in-time suppliers.

31. Mistakes not eliminated by prevention costs may cause

appraisal failure costs

costs

a. no no
b. no yes
c. yes no
d. yes yes

32. Product quality includes all of the following except

a. appeal.
b. performance.
c. durability.
d. price.

33. Recalls are fairly common events for automobile manufacturers. The costs of
recalling and repairing a car create

internal failure external failure prevention

costs costs costs

a. yes yes no
b. yes yes yes
c. no yes no
d. yes no yes

34. An appraisal cost is created by

a. installing automated technology.
b. reworking products.

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c. verifying procedures.
d. rescheduling and setup.

35. Compliance costs include

prevention appraisal internal failure

costs costs costs

a. yes no no
b. no yes yes
c. yes yes no
d. yes yes yes

36. Management can decide where to concentrate its quality prevention dollars
using
a. statistical process control charts.
b. just-in-time inventory systems.
c. a feedback loop.
d. Pareto analysis.

37. Historically, the cost of quality has been

a. included in account balances for items such as Work in Process
Inventory and marketing expenses.
b. detailed in various "cost of quality" account balances on the
Income Statement.
c. immaterial because no accounts were developed to detail these
amounts.
d. generally spent in the prevention rather than the appraisal
category.

38. A significant cost of quality that is not recorded in the accounting records is
the
a. failure cost for a customer complaint center.
b. cost of reworking products to bring them up to specification.
c. opportunity costs of forgone future sales.
d. appraisal cost for product equipment.

39. A cost of quality report compares current period quality costs in specified
categories to
a. last year's quality costs.
b. current period budgeted quality costs.
c. total quality costs for the period.
d. both a and b.

40. Which of the following is not one of the three objectives of a quality
program?

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a. Product quality should be consistent to always meet the

purchaser's need(s).
b. A quality program should give management confidence that the
quality is and will be at a constant level.
c. A quality program should give customers confidence that the
intended quality will be achieved in products.
d. Product quality should always vary because customers change
their wants and needs over time.

41. The most visible embodiment of total quality management in the United
States is
a. being awarded the Deming Prize.
b. achieving ISO 9000 certification.
c. meeting industry standards.
d. receiving the Baldrige Award.

42. Which of the following are categories judged for the Baldrige Award?

Business Use of SPC Custom

Benchmarki results and er Leadershi
ng Pareto focus p
analysis

a. no yes no yes
yes
b. yes yes yes yes
yes
c. yes yes no yes
no
d. no no no no
no

43. The ISO 9000 series refers to

a. international guidelines for quality standards.
b. provisions regarding benchmarking activities in the European
Union.
c. guidelines for appropriate expenditures on the various categories
of quality costs.
d. all of the above.

44. The ISO 9000 standards

a. indicate which companies' products are better than those of
competitors.
b. allow management to decide how to meet the standards for
quality assurance.
c. include specific directives about product design, material

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procurement, and environmental responsibilities.

d. compose a program of quality assurance under which companies
are registered by the International Organizational for
Standardization.

45. A quality audit involves a review of

manufacturi cost of quality

ng quality documentati
processes standards on

a. yes yes yes

b. no yes yes
c. no no no
d. yes no yes

46. Registration under ISO 9000 is

a. required for all companies doing business internationally.
b. required for all European companies doing business in Europe.
c. not required for U.S. companies unless they use European
suppliers.
d. required for all companies producing regulated products to be
sold in the European Union.

Part II. PROBLEMS

Seating Concepts has just finished its first year of business. Seating Concepts
makes decorative outdoor furniture. The firm manufactured 2,500 pieces of
furniture during the year: 2,400 were sold at garden centers for $456,000;
100 pieces were defective and could only be sold as scrap metal (25 pounds
each and can be sold for $2.50 per pound). No defective units could be
reworked. During the year the following costs were incurred:

Total appraisal cost $9,000

Total prevention cost 25,700
Total production cost 250,000
Total selling and administrative cost 70,000

1. Compute the total profits lost by the company from selling

scrap units during its first year of operations.
2. Compute the total quality cost incurred by the company during
the first year of operations.

Cokesbury Corporation is a manufacturer of electronic blood pressure

monitors for

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home use. The following is a summary of quality costs for the first year of
operations.

Total defective units 1,500

Number of units reworked 800
Number of customer units returned 200
Profit for a good unit $50
Profit for a defective unit $30
Cost to rework a defective unit $12
Cost of a returned unit $20
Total prevention cost $17,500
Total appraisal cost $9,500

3. Compute the profit lost by selling defective units not

reworked.
4. Compute the total rework cost.
5. Compute the cost of processing customer returns.
6. What is the total failure cost?
7. Determine the total quality cost.

Variance Corporation is a manufacturer of a versatile statistical calculator.

The following information is a summary of defective and returned units for
the previous year.

Total defective units 1,000

Number of units reworked 750
Number of customer units returned 150
Profit for a good unit $40
Profit for a defective unit $25
Cost to rework a defective unit $10
Cost of a returned unit $15
Total prevention cost $10,000
Total appraisal cost $5,000

8. The profit lost by selling defective units not reworked is?

9. The total rework cost is?
10. The cost of processing customer returns is?
11. The total failure cost is?
12. The total quality cost is?

13. The profit lost by selling defective units to Greenstein Company

totals $1,440. The total rework cost for 700 units is $28,000. The
difference between the profit earned on a good unit and a defective
unit is $12. How many total defective units did Variance
Corporation produce?

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14. Denison Company's cost of compliance is $58,000. Appraisal cost

is $21,000 and failure cost is $32,000. The company's total quality
cost is?
~~~~

Suggested Key
I. Theories
A. True or False
1. T 15. T
2. F 16. F
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3. T 17. F
4. T 18. T
5. F 19. T
6. T 20. F
7. T 21. T
8. F 22. T
9. T 23. F
10. T 24. T
11. F 25. T
12. F 26. T
13. T 27. F
14. T 28. T

B. Multiple Choice
1. B 24. C
2. C 25. B
3. B 26. D
4. A 27. B
5. C 28. B
6. D 29. A
7. B 30. C
8. C 31. D
9. D 32. D
10. A 33. A
11. B 34. C
12. C 35. C
13. A 36. D
14. D 37. A
15. B 38. C
16. C 39. D
17. A 40. D
18. C 41. D
19. D 42. A
20. A 43. A
21. B 44. B
22. C 45. D
23. B 46. D

II. Problems
1. $12,750 8. $3,750.
2. $47,450 9. $7,500.
3. $14,000 10. $2,250.
4. $9,600 11. $13,500.
5. $4,000 12. $28,500.

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6. $27,600 13. 820 units

7. $54,600 14. $90,000.
15.
16.

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