BU375 - Practice Problem Set #1

1.1. (LO 1.4) Tried and True Clothing has opened four new stores in towns
across southern Ontario. Data on monthly sales volume and labour hours
are given below. Which store location has the highest labour
productivity?
Store Hamilton Kingston London Waterloo
Sales volume $40,000 $12,000 $60,000 $25,000
Labour hours 250 60 500 200

1-1. The Kingston store is the most productive.

Store Hamilton Kingston London Waterloo

Sales volume $40,000 $12,000 $60,000 $25,000

Labour hours 250 60 500 200

Productivity 40k/250 = 12k/60 = 60k/500 25k/200 =
$160 $200 = $120 $125

2.1. (LO 2.6) Backwoods Canada, Inc. produces expensive water-repellent,

down-lined parkas. The company implemented a total quality-management
program last year. Following are quality-related accounting data that have
been accumulated for the five- year period after the program’s start.
Year
1 2 3 4 5
Quality Costs (000s)
Prevention $3.2 10.7 28.3 42.6 50.0
Appraisal 26.3 29.2 30.6 24.1 19.6
Internal failure 39.1 51.3 48.4 35.9 32.1
External failure 118.6 110.5 105.2 91.3 65.2
Accounting Measures (000s)
Sales $2,700.6 2,690.1 2,705.3 2,310.2 2,880.7
Manufacturing cost 420.9 423.4 424.7 436.1 435.5
1. a. Calculate the company’s total failure costs as a percentage of total
quality costs for each of the five years. Does there appear to be a
trend to this result? If so, speculate on what might have caused the
trend.

Failure costs as percentage of quality costs:

39.1 + 118.6 = 157.7 ; 3.2+26.3+39.1+118.6 = 187.2
2009: 157.
7 = 0.8424, or 84.24%
187.
2

2010: 161.
8 = 0.8022, or 80.22%
201.
7

2011: 153.
6 = 0.7228, or 72.88%
212.
5

2012: 127.
2 = 0.6560, or 65.6%
193.
9

2013: 97.
3 = 0.5830, or 58.3
166.
9

2. b. Calculate prevention costs and appraisal costs, each as a

percentage of total costs, during each of the five years. Speculate
on what the company’s quality strategy appears to be.

Prevention costs as % of quality Appraisal costs as % of quality

costs: costs
3.2
Year 1: = 0.0171, or 26.3
187.2 = 0.1404, or 14.04%
187.2
1.71%

10.7 29.2
Year 2: = 0.0530, or 5.3% = 0.1448, or 14.48%
201.7 201.7

28.3
Year 3: = 0.1332, or 30.6
212.5 = 0.144, or 14.4%
212.5
13.32%

42.6
Year 4: = 0.2197, or 24.1
193.9 = 0.1243, or 12.43%
193.9
21.97%

50 19.6
Year 5: = 0.2996, or = 0.1174, or 11.74%
166.9 166.9
 29.96%
The increase in prevention costs as a percentage of total quality costs indicates
that Backwoods Canada is placing more emphasis on prevention of defects
rather than correction of them. Perhaps they are spending more in the areas of
quality planning, product design, process, training, and information. This is
contributing to a decline in the need for inspection and testing, equipment
testing, and operators to test quality; thus appraisal costs decline, both
absolutely and as a percentage of total costs. Prevention also contributes to the
decline in external and internal failures, because fewer defective products are
produced to begin with. Increases in prevention expenditures will result in a
decrease in all other quality costs.

3. c. Calculate quality sales indices and quality-cost indices for each of the
five years. Is it possible to assess the effectiveness of the company’s
quality-management program from these index values?

Quality Sales Index Quality-Cost Index

6.93 =
Year 1 [(187.2/2700.6)*1 44.48 [(187.2/420.9)*100]
00]
Year 2 7.50 47.64
Year 3 7.85 50.04
Year 4 6.9 44.46
Year 5 5.79 38.32

These index values do not provide much information regarding the effectiveness
of the quality assurance program. They are, however, useful in making
comparisons from one period to the next and in showing trends in product
quality over time.

4. d. List several examples of each quality-related cost—that is,

prevention, appraisal, and internal and external failure—that
might result from the production of parkas.

Examples of quality-related costs:

• Prevention: Market research, that is, producing what consumers want;
purchasing only high-quality down and other materials, designing an efficient
and effective manufacturing process; training employees in making quality
products.
• Appraisal: Inspection of raw materials, work-in-process, and finished
product; equipment testing (pattern cutter, sewing machines, etc.),
inspection.
• Internal failure: Wasted materials and labour, defective products discovered
during inspection, use of inefficient processes, equipment downtime, poorly
trained employees.
• External failure: Defective products, customer complaints, warranty costs,
lost sales, loss of good will.

2.3. (LO 2.7) The Colonial House Furniture Company manufactures two-
drawer oak file cabinets that are sold unassembled. The company initiates
production of 150 cabinet packages each week. The percentage of good-
quality cabinets averages 83% per week, and the percentage of poor-quality
cabinets that can be reworked is 60%.
 1. a. Determine the weekly product yield of file cabinets.
2. b. If the company desires a product yield of 145 units per week, what
increase in the percentage of good-quality products must result?

2.4. (LO 2.7) In Problem 2.3, if the direct manufacturing cost for cabinets is $27
and the rework cost is $8, Calculate the manufacturing cost per good-product.
Determine the manufacturing cost per product if the percentage of good-quality
file cabinets is increased from 83% to 90%.

Cabinets to be reworked: R=150 (1−0.83 ) ( 0.6 ) =15.3

Yield: 139.8 cabinets (from Q2.3)

$ 27 (150)+ $ 8 (15.3)
Cost = = $29.85 per cabinet when quality is 83%
139.8

Note: if you round down and only account for complete cabinets, $30 instead of $29.85

$ 27 (150)+ $ 8 (15)
Cost = = $30 per cabinet when quality is 83%
139

If quality increases to 90%:

R=150 (1−0.9 ) ( 0.6 ) =9
Y =150∗0.9+ ¿ R = 144
3.1. (LO 3.3) The Great North Woods Clothing Company sells specialty
outdoor clothing through its website. A quality problem that generates
customer complaints occurs when a warehouse employee fills an order with
the wrong items. The company has decided to implement a process control
plan by inspecting the ordered items after they have been obtained from
the warehouse and before they have been packaged. The company takes 30
samples (during a 30-day period), each for 100 orders, and records the
number of “defective” orders in each sample, as follows:
Sample Number of Defectives
1 12
2 14
3 10
4 16
5 18
6 19
7 14
8 20
9 18
10 17
11 9
12 11
13 14
14 12
15 7
16 6
17 3
18 7
19 10
20 14
Sample Number of Defectives
21 18
22 22
23 26
24 20
25 24
26 18
27 19
28 20
29 17
30 18

Construct a p-chart for the company that describes 99.74% (3σ) of the random
variation in the process, and indicate if the process seems to be out of control at
any time.
3.5. (LO 3.3) The Great North Woods Clothing Company sells specialty
outdoor clothing through its website. It has a customer service number to
handle customer order problems, inquiries, and complaints. The company
wants to monitor the number of customer calls that can be classified as
complaints. The total number of complaint calls the customer service
department received for each of the last 30 weekdays are as follows:
Day Complaint Calls
1 27
2 15
3 38
4 41
5 19
6 23
7 21
8 16
9 33
10 35
11 26
12 42
13 40
Day Complaint Calls
14 35
15 25
16 19
17 12
18 17
19 18
20 26
21 31
22 14
23 18
24 26
25 27
26 35
27 20
28 12
29 16
30 15

a. Construct a c-chart for this process with 3σ control limits and indicate if
the process was out of control at any time.
b. What non-random (i.e., assignable) causes might result in the process
being out of control?
3.11. (LO 3.4) Valtec Electronics fills orders for its electronic components and
parts by delivering them by truck to customers through several distribution
centres. A measure of its supply chain responsiveness is order fulfillment
lead time, which is the number of days from when a company receives an
order to when it is delivered to the customer. A distribution centre
manager takes 20 samples of five orders each during the month and
records the lead time for each as follows:
Samples Load Time (Days)
1 1.3 2.4 0.7 3.0 1.8
2 2.1 1.2 1.0 2.5 3.6
3 4.2 3.3 2.6 1.5 3.0
4 1.6 2.1 2.8 0.9 1.5
5 2.6 3.0 1.4 4.6 1.9
6 0.8 2.7 5.8 3.7 4.5
7 2.6 3.5 3.1 3.6 1.4
8 3.4 6.1 1.5 2.5 2.8
9 3.1 2.5 2.2 2.9 1.8
10 2.4 4.8 5.9 3.2 4.4
11 1.9 2.7 3.4 2.2 0.4
12 6.1 4.9 2.1 3.6 5.2
13 1.2 3.4 2.8 2.3 4.5
14 2.4 2.9 3.4 2.3 2.5
15 3.7 7.0 1.4 2.4 3.3
16 3.6 2.7 4.8 2.0 1.7
17 0.4 1.8 6.5 3.2 4.8
18 5.3 2.9 3.4 4.8 4.4
19 2.7 3.6 2.9 4.1 5.2
20 4.7 2.0 2.0 3.1 1.8
Construct an x¯-chart to be used in conjunction with an R-chart using 3σ
limits for this data and indicate if the process is in control.
3.17. (LO 3.4) For the sample data provided in Problem 3.14, construct an x¯-
chart in conjunction with the R-chart, plot the sample observations, and,
using both x¯- and R- charts, comment on the process control.
3.28. (LO 3.4) Martha’s Wonderful Cookie Company makes a special super
chocolate- chip peanut butter cookie. The company would like the cookies
to average
approximately eight chocolate chips apiece. Too few or too many chips
distort the desired cookie taste. Twenty samples of five cookies each
during a week are taken and the chocolate chips counted. The sample
observations are as follows:
Samples Chips per Cookie
1 7 6 9 8 5
2 7 7 8 8 10
3 5 5 7 6 8
4 4 5 9 9 7
5 8 8 5 10 8
6 7 6 9 8 4
7 9 8 10 8 8
8 7 6 5 4 5
9 9 10 8 9 7
10 11 9 9 10 6
11 5 5 9 8 8
12 6 8 8 5 9
13 7 3 7 8 8
14 6 9 9 8 8
15 10 8 7 8 6
16 5 6 9 9 7
17 6 10 10 7 3
18 11 4 6 8 8
19 9 5 5 7 7
20 8 8 6 7 3
Construct an x -chart in conjunction with an R-chart using 3σ limits for this
data and comment on the cookie-production process.

3.33. (LO 3.6) Martha’s Wonderful Cookie Company in Problem 3.28 has designed
its special super chocolate-chip peanut butter cookies to have eight chocolate
chips with tolerances of ± 2 chips. Using the process mean and control limits
developed in Problem 3.28, determine the process capability ratio and index, and
comment on the capability of the cookie-production process.