Question :
19.3 Analyze the benefits of using both financial and nonfinancial : 1186122
19.3 Analyze the benefits of using both financial and nonfinancial measures of quality.
1) Most companies do not measure the financial cost of design quality.
2) Lost contribution margin can result from either internal or external failure.
3) In order for management to initiate quality improvement programs and projects, a complete cost-benefit analysis (including a projection of how the improvement will incrementally affect total costs and total revenues) is necessary.
4) Allocated cost amounts are an important determinant of the costs of a quality improvement program.
5) The number of defects shipped to customers as a percentage of total units shipped is a type of nonfinancial quality measure.
6) The financial cost of quality measures serves as a common denominator for evaluating trade-offs among prevention costs and failure costs.
Use the information below to answer the following question(s).
Capital Manufacturing expects to spend $200,000 in the current year 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 $20,000 in fixed appraisal costs and variable costs of $0.20 per item. The new method involves $30,000 in training costs and an additional $80,000 in annual equipment rental. It takes two units of material for each finished product.
Internal failure costs average $40 per failed unit of finished goods. During the previous year, 10 percent of all completed items had to be reworked. External failure costs average $100 per failed unit. The company’s average external failures are 2 percent 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.
7) What is the net effect on appraisal costs for the current year assuming the new receiving method is implemented and that 400,000 material units are received?
A) $10,000 increase
B) $10,000 decrease
C) $100,000 decrease
D) $110,000 increase
E) $115,000 decrease
8) How much will internal failure costs change assuming 400,000 units of materials are received and that the new receiving method reduces the amount of unacceptable product units in the manufacturing process by 20 percent?
A) $10,000 increase
B) $50,000 decrease
C) $160,000 decrease
D) $320,000 decrease
E) $500,000 decrease
9) How much will external failure costs change assuming 400,000 units of materials are received and that the product failures with customers are cut in half with the new receiving method?
A) $10,000 increase
B) $200,000 decrease
C) $320,000 decrease
D) $400,000 decrease
E) $500,000 decrease
Use the information below to answer the following question(s).
Imperial Products has a budget of $600,000 in the current year for prevention costs. If it decides to automate a portion of its prevention activities it will save $40,000 in variable costs. The new method will require $12,000 in training costs and $80,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budget includes a production level of 100,000 units.
Appraisal costs for the year are budgeted at $400,000. The new prevention procedures will save appraisal costs of $20,000. Internal failure costs average $10 per failed unit of finished goods. The internal failure rate is expected to be 2 percent of all completed items. The proposed changes will cut the internal failure rate in half. Internal failure units are destroyed. External failure costs average $36 per failed unit. The company’s average external failures average 2 percent of units sold. The new proposal will reduce this rate by 80 percent.
10) What is the net change in the budget of prevention costs if the procedures are automated in the current year?
A) $40,000 decrease
B) $52,000 increase
C) $52,000 decrease
D) $92,000 increase
E) $92,000 decrease
