MANAGEMENT ADVISORY SERVICES

IMPLEMENTING QUALITY CONCEPTS

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. 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.
____ 2. 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.
____ 3. Reverse engineering is used in
a. statistical process control.
b. process benchmarking.
c. results benchmarking.
d. price fixing.
____ 4. Benchmarking against noncompetitors is extremely important in
a. process benchmarking.
b. results benchmarking.

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c. reverse engineering.
d. all of the above.

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____ 5. Benchmarking does which of the following activities relative to a "best-in-class" (BIC) company?

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Compares BIC's Copies BIC's Improves on

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products and products and BIC's products
processes
with own rs e processes
directly
and
processes
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a. yes yes yes
b. yes no no
c. no no yes
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d. yes no yes
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____ 6. Which of the following is not a step in benchmarking procedures?

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a. analyze the "positive gap"

b. engage in continuous improvement
c. analyze the "negative gap"
d. identify "best-in-class" companies
____ 7. A total quality system should be designed to promote a reorientation of thinking from an emphasis on
ed d

a. internal quality improvements to an emphasis on external benchmarking.

b. the planning process to an emphasis on the performance evaluation process.
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c. inspection to an emphasis on prevention.

d. process benchmarking to an emphasis on results benchmarking.
____ 8. Total quality management is inseparable from the concept of
a. ISO certification.
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b. centralized organizational structure.

c. continuous improvement.
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d. the product life cycle.

____ 9. 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.
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d. has been mandated by management for workers to pursue.

____ 10. 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.
____ 11. The four categories of product quality costs are
a. external failure, internal failure, prevention, and carrying.

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b. external failure, internal failure, prevention, and appraisal.

c. external failure, internal failure, training, and appraisal.
d. warranty, product liability, training, and appraisal.
____ 12. The number of product defects discovered by consumers is what kind of performance indicator?

Qualitative Quantitative Financial Nonfinancial

a. yes no no yes
b. no yes no yes
c. no yes yes no
d. yes no no yes
____ 13. Production quality is affected by
a. worker productivity.
b. the amount of failure costs incurred.
c. worker skill level.
d. just-in-time suppliers.
____ 14. Product quality includes all of the following except
a. appeal.
b. performance.
c. durability.
d. price.

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____ 15. An appraisal cost is created by
a. installing automated technology.

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b. reworking products.

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c. verifying procedures.
d. rescheduling and setup.

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____ 16. Management can decide where to concentrate its quality prevention dollars using

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a. statistical process control charts.
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b. just-in-time inventory systems.
c. a feedback loop.
d. Pareto analysis.
____ 17. Historically, the cost of quality has been
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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.
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c. immaterial because no accounts were developed to detail these amounts.

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d. generally spent in the prevention rather than the appraisal category.

____ 18. 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.
ed d

d. both a and b.
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____ 19. Which of the following is not one of the three objectives of a quality program?
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
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products.
d. Product quality should always vary because customers change their wants and needs over time.
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____ 20. 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 procurement, and environmental
responsibilities.
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d. compose a program of quality assurance under which companies are registered by the International
Organizational for Standardization.

StatPro Corporation

StatPro Corporation is a manufacturer of a versatile statistical calculator. The following information is a summary of
defective and returned units for the previous year.

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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

____ 21. Refer to StatPro Corporation. The profit lost by selling defective units not reworked is
a. $25,000.
b. $15,000.
c. $18,750.
d. $3,750.
____ 22. Refer to StatPro Corporation. The total rework cost is
a. $7,500.
b. $15,000.
c. $2,500.
d. $3,750.
____ 23. Refer to StatPro Corporation. The cost of processing customer returns is

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a. $9,000.

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b. $2,500.

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c. $22,500.

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d. $2,250.
____ 24. Refer to StatPro Corporation. The total failure cost is

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a. $15,000.
b. $13,500.
c. $11,250. rs e
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d. $8,250.
____ 25. Refer to StatPro Corporation. The total quality cost is
a. $15,000.
b. $15,750.
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c. $28,500.
aC s

d. $11,250.
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____ 26. Refer to StatPro Corporation. The profit lost by selling defective units to Pittman 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 StatPro Corporation produce?
a. 120
b. 740
ed d

c. 736
d. 820
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____ 27. Porter 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
a. $53,000.
b. $79,000.
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c. $90,000.
d. $111,000.
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____ 28. Quality management provides an important competitive edge because it

a. reduces costs.
b. increases customer satisfaction.
c. often results in substantial savings and higher revenues in the short run.
d. does all of the above.
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____ 29. Quality of design measures how closely the characteristics of products or services match the needs and wants of customers.
Conformance quality
a. measures the same things.
b. is the performance of a product or service according to design and product specifications.
c. is making the product according to design, engineering, and manufacturing specifications.
d. focuses on fitness of uses from a customer perspective.
____ 30. Which of the following fail to satisfy conformance quality?
a. Machines that fail to meet the needs of customers

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b. Machines that break down

c. Depositing a customer's check into the correct account
d. All of the above fail to satisfy conformance quality.
____ 31. Costs incurred in precluding the production of products that do not conform to specifications are
a. prevention costs. c. internal failure costs.
b. appraisal costs. d. external failure costs.
____ 32. Costs incurred in detecting which of the individual units of products do not conform to specifications are
a. prevention costs. c. internal failure costs.
b. appraisal costs. d. external failure costs.
____ 33. Preventive equipment maintenance is an example of
a. prevention costs. c. internal failure costs.
b. appraisal costs. d. external failure costs.
____ 34. Mount Vernon Furniture manufactures expensive tables. Its varnishing department is fully automated and requires substantial
inspection to keep the machines operating properly. An improperly varnished table is very expensive to correct. Inspection hours for
the 10,000 tables varnished in September totaled 2,500 hours by 16 employees. Eight quarts of varnish were used, on average, for
each table. The standard amount of paint per table is ten quarts. The cost of inspection for September was equal to the budgeted
amount of $76,000.

What is the inspection cost per unit?

a. $30.40 c. $3,800
b. $7.60 d. $4,000

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____ 35. Examples of opportunity costs include

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a. lost sales. c. lower production.

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b. forgone contribution margin. d. all of the above.

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____ 36. A graph of a series of successive observations of a particular step, procedure, or operation taken at regular intervals of time is a
a. control chart. c. cause-and-effect diagram.

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b. Pareto diagram. d. fishbone diagrams.
____ 37.
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When using a control chart, a manager does not investigate the activity when
a. all observations are outside the preset range.
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b. some observations are outside the preset range.
c. all observations are within the range of preset standard deviations.
d. almost all observations are within the range of two standard deviations.
____ 38.
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A tool which identifies potential causes of failures or defects is

a. a control chart. c. a cause-and-effect diagram.
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b. a Pareto diagram. d. none of the above.

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Metropolitan Manufacturing expects to spend $400,000 in 20x4 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 $40,000 in fixed appraisal costs and variable costs
of $0.40 per unit of finished product. The new method involves $60,000 in training costs and an additional $160,000 in annual
equipment rental. It takes two units of material for each finished product.
ed d

Internal failure costs average $80 per failed unit of finished goods. During 20x3, 5% of all completed items had to be reworked.
External failure costs average $200 per failed unit. The company's average external failures are 1% of units sold. The company
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carries no ending inventories, because all jobs are on a per order basis and a just-in-time inventory ordering method is used.

____ 39. What is the net effect on appraisal costs for 20x4, assuming the new receiving method is implemented and that 800,000 material
units are received?
a. $20,000 increase c. $200,000 decrease
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b. $20,000 decrease d. $220,000 increase

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Regal Products has a budget of $900,000 in 20x3 for prevention costs. If it decides to automate a portion of its prevention activities, it
will save $60,000 in variable costs. The new method will require $18,000 in training costs and $120,000 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.
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Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $30,000. 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.

____ 40. What is the net change in the budget of prevention costs if the procedures are automated in 20x4? Will management agree with the
changes?
a. $60,000 decrease, yes c. $60,000 increase, no

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b. $78,000 increase, yes d. $138,000 increase, no

____ 41. How much will appraisal costs change assuming the new prevention methods reduce material failures by 40% in the appraisal
phase?
a. $240,000 decrease c. $30,000 decrease
b. $60,000 increase d. $12,000 decrease
____ 42. How much will internal failure costs change if the internal product failures are reduced by 50% with the new procedures?
a. $33,750 decrease c. $500,000 decrease
b. $67,500 decrease d. $750,000 decrease
____ 43. How much does external failure costs change if all changes are as anticipated with the new prevention procedures? Assume all units
produced are sold and there are no ending inventories.
a. $121,500 decrease c. $243,000 decrease
b. $121,500 increase d. None of the above
____ 44. The ratio of good output to total output is referred to as
a. cause and effect. c. conformance quality.
b. process yield. d. quality of design.
____ 45. Nonfinancial measures of quality are of limited use by themselves. They are more informative when
a. combined with trend analysis. c. used with nonroutine financial data.
b. used with the half-life depreciation method. d. used alone.
____ 46. 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
a. manufacturing lead time. c. customer-response time.

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b. bottleneck. d. time driver.

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____ 47. Any factor where change in the factor causes a change in the speed with which an activity is undertaken is referred to as
a. time driver. c. manufacturing lead time.

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b. bottleneck. d. customer-response time.

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Speedy Dress Manufacturing has two workstations, cutting and finishing. The cutting station is limited by the speed of operating the
cutting machine. Finishing is limited by the speed of the workers. Finishing normally waits for work from cutting. Each department

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works an eight-hour day. If cutting begins work two hours earlier than finishing each day, the two departments generally finish their
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work at about the same time. Not only does this eliminate the bottleneck, but also it increases finished units produced each day by
160 units. All units produced can be sold even though the change increases inventory stock by 20% from 400 units. The cost of
operating the cutting department two more hours each day is $1,600. The contribution margin of the finished products is $6 each.
Inventory carrying costs are $0.40 per unit per day.
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____ 48. What is the change in the daily contribution margin if the change is made?
a. $(608) c. $(672)
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b. $(634) d. $800
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____ 49. To assess how customers perceive a company's products, management may study:
a. the number of customer complaints.
b. the number of warranty claims.
c. the number of products returned.
d. the cost of repairing returned products.
ed d

e. all of the above measures.

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____ 50. To improve its manufacturing efficiency, companies should strive toward increasing __________ time as a percentage
of processing time + inspection time + waiting time + move time. The blank is:
a. processing time.
b. lead time.
c. waiting time.
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d. move time.
e. inspection time.
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____ 51. The manufacturing cycle efficiency for PQR Company when the processing time is six hours and inspection, waiting,
and move time are one hour each is:
a. 0.67.
b. 0.75.
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c. 0.78.
d. 0.88.
e. an amount other than those shown above.
____ 52. Which of the following would not be a concern of a company that desires to compete in a global manufacturing arena?
a. Number of new products introduced.
b. Manufacturing cycle efficiency.
c. Number of customer complaints.
d. Number of on-time deliveries.
e. All of the above would be concerns.

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____ 53. Lead indicators guide management to:

a. take actions now that will have positive effects on organizational performance now.
b. take actions now that will have positive effects on organizational performance in the future.
c. take actions in the future that will have positive effects on organizational performance now.
d. take actions in the past that will have positive effects on organizational performance in the future.
e. pursue identical strategies as those implemented with lag indicators.
____ 54. When using a balanced scorecard, a company's market share is typically classified as an element of the firm's:
a. financial performance measures.
b. customer performance measures.
c. learning and growth performance measures.
d. internal-operations performance measures.
e. interdisciplinary performance measures.
____ 55. The quality costs that are associated with materials and products that fail to meet quality standards and result in manufacturing
losses are known as:
a. internal failure costs
b. external failure costs
c. prevention costs
d. appraisal costs
e. none of the above
____ 56. All of the following are characteristics of total quality management except:
a. the company's objective for all business activity is to serve its customers

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b. top management provides an active leadership role in quality improvement
c. all employees are actively involved in quality improvement

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d. the company maintains a loosely defined system of identifying quality problems so as not to stifle employee

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creativity
e. the company provides continuous training as well as recognition for achievement

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____ 57. Appraisal costs include all of the following except:

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a. inspecting and testing materials
b. inspecting products during and after production
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c. obtaining information from customers about product satisfaction
d. designing quality into the product and the production process
e. all of the above
____ 58. If spoilage occurs as a result of an internal failure in a process cost system, using fifo costing, the number of equivalent units that
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production costs should be charged to would be based upon:

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a. spoiled units
b. units transferred out and spoiled units
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c. units transferred out, beginning inventory, and units in ending inventory

d. units transferred out, spoiled units, units in ending inventory, and units in beginning inventory
e. none of the above
ed d

PROBLEM
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1. The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal
failure costs, or external failure costs.

a. Retesting of reworked products

b. Downtime due to quality problems
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c. Analysis of the cause of defects in production

d. Depreciation of test equipment
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e. Warranty repairs
f. Lost sales arising from a reputation for poor quality
g. Quality circles
h. Rework direct manufacturing labor and overhead
i. Net cost of spoilage
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j. Technical support provided to suppliers

k. Audits of the effectiveness of the quality system
l. Plant utilities in the inspection area
m. Reentering of data because of keypunch errors

_______________ Prevention costs

_______________ Appraisal costs

_______________ Internal failure costs

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_______________ External failure costs

2. 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?

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aC s
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ed d
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Th
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