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Balanced Scorecard Quality, Time, and The Theory of Constraints

This document contains sample test questions, problems, and critical thinking questions about quality management and the theory of constraints. Some key points covered include: 1. Quality management can provide competitive advantages like reducing costs, increasing customer satisfaction, and generating higher revenues. Ensuring on-time performance increases customer satisfaction. 2. The theory of constraints focuses on bottlenecks in production and uses concepts like throughput contribution to analyze costs. 3. Quality improvement programs can benefit manufacturers by reducing costs from failures and returns while increasing revenues from satisfied customers. Monitoring for quality problems involves tools like control charts.

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447 views

Balanced Scorecard Quality, Time, and The Theory of Constraints

This document contains sample test questions, problems, and critical thinking questions about quality management and the theory of constraints. Some key points covered include: 1. Quality management can provide competitive advantages like reducing costs, increasing customer satisfaction, and generating higher revenues. Ensuring on-time performance increases customer satisfaction. 2. The theory of constraints focuses on bottlenecks in production and uses concepts like throughput contribution to analyze costs. 3. Quality improvement programs can benefit manufacturers by reducing costs from failures and returns while increasing revenues from satisfied customers. Monitoring for quality problems involves tools like control charts.

Uploaded by

HendriMaulana
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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CHAPTER 19

BALANCED SCORECARD: QUALITY, TIME, AND


THE THEORY OF CONSTRAINTS
TRUE/FALSE

1. Shortening delivery times is a minor part of the quality improvement process.

2. Costs of quality (COQ) reports usually do not consider opportunity costs.

3. When considering customer needs and wants, only financial measures can be used,
since they are easily measured.

4. A control chart identifies potential causes of failures or defects.

5. Most companies expend a substantial amount of dollars measuring the financial


costs of design quality.

6. Two common operational measures of time are customer-response time and


m6anufacturing lead time.

7. On-time performance will increase customer satisfaction.

8. The cost of poor quality at a nonbottleneck operation is the cost of the materials
wasted.

MULTIPLE CHOICE

1. 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. All of these answers are correct.

2. Costs incurred in detecting which of the individual units of products do not conform
to specifications are:
a. prevention costs
b. appraisal costs
c. internal failure costs
d. external failure costs

3. A liability claim is an example of:


a. prevention costs
b. appraisal costs
c. internal failure costs

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d. external failure costs

4. Examples of opportunity costs include:


a. lost sales
b. forgone contribution margin
c. lower production
d. All of these answers are correct.

5. Statistical quality control includes a control chart that:


a. graphs a series of random events of a process
b. plots each observation relative to specified ranges that represent the expected
distribution
c. plots control observations over various periods of time
d. plots only those observations outside specified limits

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 6 THROUGH 8:


Metropolitan Manufacturing expects to spend $400,000 in 20X6 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.

Internal failure costs average $80 per failed unit of finished goods. During 20X5, 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 carries
no ending inventories, because all jobs are on a per order basis and a just-in-time
inventory ordering method is used.

6. What is the net effect on appraisal costs for 20X6, assuming the new receiving
method is implemented and that 800,000 material units are received?
a. $20,000 increase
b. $20,000 decrease
c. $200,000 decrease
d. $220,000 increase

7. How much will internal failure costs change, assuming 800,000 units of materials
are received and that the new receiving method reduces the amount of unacceptable
product units in the manufacturing process by 10%?
a. $20,000 increase
b. $25,000 decrease
c. $80,000 decrease
d. $160,000 decrease

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8. How much will external failure costs change assuming 800,000 units of materials
are received and that 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

9. The amount of time from when a customer places an order for a product or requests
a service to when the product or service is delivered to the customer is referred to
as:
a. manufacturing lead time
b. bottleneck
c. customer-response time
d. a time driver

10. _______________ is an operation where the work to be performed approaches or


exceeds the available capacity.
a. A bottleneck
b. A time driver
c. Customer-response time
d. Manufacturing lead time

11. The theory of constraints is used for cost analysis when:


a. a manufacturing company produces multiple products and uses multiple
manufacturing facilities and /or machines
b. using a long-term time horizon
c. operating costs are assumed fixed
d. All of these answers are correct.

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


a. investment costs
b. direct material
c. direct material and direct labor
d. direct material, direct labor, and variable overhead costs

13. The Glass Shop, a manufacturer of large windows, is experiencing a bottleneck in


its plant. Setup time at one of its workstations has been identified as the culprit. A
manager has proposed a plan to reduce setup time at a cost of $72,000. The change
will result in 8,000 additional windows. The selling price per window is $18, direct
labor costs are $3 per window, and the cost of direct materials is $5 per window.
Assume all units produced can be sold. The change will result in an increase in the
throughput contribution of:
a. $104,000
b. $80,000
c. $32,000

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d. $8,000

EXERCISES AND PROBLEMS

1. Write a paragraph outlining how a manufacturer of personal computers such as Dell


Computer can benefit from the introduction of a quality improvement program.

2. Discuss the methods used to identify quality problems.

3. Little Dog Unlimited makes small motorcycles. The monthly demand ranges from
80 to 100 motorcycles. The average demand is 92 motorcycles. The plant operates
300 hours a month. Each cycle takes approximately 1.5 hours.
If the company adds a new line of scooters, initial demand will be 20 per month.
Each scooter will take 1 hour to make. To offset approaching production capacity,
expanding the assembly line is possible. This will decrease manufacturing time for
all products by 20%. However, this will increase the costs of cycles from $400 to
$500 and scooters from $200 to $240. The change will also cause increases in
prices from $700 to $750 for cycles and from $450 to $500 for scooters.
Required:
a. What is the average waiting time for cycles if they are the only item
manufactured?
b. What are the average waiting times if both cycles and scooters are produced
and the assembly line is not enlarged?
c. What are the average waiting times if both cycles and scooters are produced
and the assembly line is enlarged?

d. What is the expected monthly margin without scooters if the company sells all
92 cycles it manufactures?
e. What are the expected monthly contribution margins if scooters are made with
the current assembly line and with the new assembly line? Assume average
sales and that sales equal production.
f. What action do you recommend?

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CRITICAL THINKING

1. 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?

2. Acme Janitor Service has always taken pride in the fact that it had one of the
highest customer response times in the home cleaning service industry. However, as
the products manufactured for this industry have become more complex, the
company's customer response time has declined.

Required:
Why do you think that response time declined if all other quality factors have
remained the same?

19-5

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