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117. Cari and Jeremy just bought a bed and breakfast inn at a very attractive price. The
business had been doing poorly. Before they reopened the inn for business, they attended a
seminar on operating a high-quality business. Now that they are ready to open the inn, they need
some advice on quality costs and the management and control of quality.
Required:
1. Identify and define each of the four categories in a typical Cost-of-Quality (COQ) reporting
system.
2. For the identified business (bed and breakfast) provide three examples of costs within each of
the four COQ categories.
118. Identify the appropriate cost-of-quality (COQ) category for each of the following items:
1. Engineering time spent to simplify production processes.
2. Engineering time spent on engineering change orders to reduce the number of component
used in a current product.
3. Scrap resulting from substandard materials undetected by the receiving personnel.
4. Rework to correct inconsistency caused by machine variability.
5. Preventive maintenance on machinery.
6. Product inspections.
7. Air freight to replace a defective part discovered by a customer.
8. Long-distance call to a customer who has experienced a quality failure.
119. Listed below are 6 items concerned with quality.
Required:
Classify each of these items into its appropriate Cost-of-Quality (COQ) category: Prevention
Cost; Appraisal Cost; Internal Failure Cost; or External Failure Cost.
1. Establish a 24-hour hot line for customers to report quality failures.
2. Establish a quality-inspection program.
3. Re-design parts and components to simplify manufacturing of the product.
4. Hire additional field service people to provide better services.
5. Extend the warranty period for products from 90 days to one year.
6. Train employees on the importance of zero defects.
120. List and explain three tools that can be used to identify or detect quality problems in a
process or operation.
121. The Old Army Jean Company has been very proud of the quality of its products. The
company has won industry awards for high quality and trend-setting styles in the last five years.
For the last two years, however, both sales volume and market share have been declining. At the
latest executive managers' meeting, everyone was blaming everyone else for the decline. Both
production and design managers suggested that sales relationships were the cause of most of
the problems.
Required:
As the CEO, how would you determine whether quality of sales relationships, not product design
or product quality, is the cause of the financial decline the company is experiencing?
122. Hyland Company manufactures generic products for several major discount chain stores.
Robert Hyland, founder and CEO, has always followed a strategy of producing low-cost
standardized products. Hyland now is facing foreign competitors who offer similar products with
higher quality and more features (options) than Hyland's products. Although Hyland still offers
the lower prices than its competitors, Hyland's net income has been steadily decreasing over the
last three quarters.
Required:
What should Hyland do?
123. The following data of causes of absenteeism for a fellow student for the year just
completed were available.
Reason# Cause of Absenteeism Number of Occurrences
1 Personal Illness 14
2 A child’s illness 31
3 Car broke down 10
4 Personal emergency 38
5 Overslept 11
6 Unexplained visitor 13
Required:
1. Use the above information to construct a histogram.
2. Use the information from requirement (1) to prepare a Pareto diagram.
(Note: In constructing the above two items, you can use the information in column 1 to describe
each of the identified causes. That is, you can use the reference numbers rather than the actual
verbal descriptions presented in column 2.)
3. Within the context of managing and control quality, what is the primary purpose played by
tools such as histograms and Pareto diagrams?
124. The Hormosa Company classifies its overall Cost of Quality (COQ) into four categories.
COQ components, as a percentage of cost of goods sold for the last three years, are as follows:
COQ Component 2016 2017 2018
(1) Prevention costs 2.00% 4.00% 1.00%
(2) Appraisal costs 1.50% 2.50% 3.00%
(3) Internal failure costs 14.50% 24.00% 26.00%
(4) External failure costs 12.00% 19.50% 30.00%
Required:
1. Prepare a histogram that shows the COQ trends for each of the four components of COQ as
well as total COQ over the period 2016 through 2018. Note: Index numbers (1) through (4) may
be used in place of a description key. For example, in labeling your histogram you can use "1" to
refer to "Prevention Costs," etc.
2. Of what interpretive or managerial value is the histogram you prepared, both in a general
sense and as it relates to the data set at hand?
125. Euromold specializes in manufacturing molded plastic panel to be fitted on car doors. The
blueprint specification for the thickness of a high-demand model calls for 0.20625 ± 0.00275
inch. It costs $180 to scrap a part that is outside of the specification. The thickness measure for
the unit just completed is 0.20823.
Required:
1. Calculate the value of
k
, the cost coefficient in the Taguchi Quality Loss Function (QLF) for
the above situation.
2. Calculate the estimated amount of quality cost (or loss) for the unit in question,
L
(
x
) (where X
= 0.20823 inches).
126. An electronic component has an output voltage specification of 138 ± 5 millivolts. The
loss to the firm for a component that is outside of the specifications is $220. The output voltage
for a sample unit is 134 millivolts.
Required:
1. Calculate the value of
k
, the cost coefficient in the Taguchi Quality Loss Function (QLF) for
the above situation.
2. Calculate the amount of estimated loss for the sample unit,
L
(
x
) (where
x
= 134 millivolts).
3. Recalculate the amount of the estimated loss if the output voltage,
x
, for the sample unit is
136 millivolts.
4. Recalculate the amount of the estimated loss of the output voltage,
x
, for the sample unit is
138 millivolts.
5. What is the primary insight revealed by the Taguchi Quality Loss Function (QLF)?
127. The Bulldog Company incurred the following quality-related costs:
2016 2017
Calibration $190,000 $120,000
Product design 180,000 210,000
Product liability 150,000 90,000
Product recalls 480,000 240,000
Retesting 300,000 240,000
Rework 390,000 120,000
Testing 60,000 180,000
Training 90,000 120,000
Warranty repairs 180,000 90,000
Required:
1. Calculate for each of the two years:
• Total
prevention costs
• Total
appraisal costs
• Total
internal failure costs
• Total
external failure costs
2. Provide two recommendations for improving the disclosure of COQ data for the current data
set (i.e., providing more informative disclosures).
3. Based on the data in this exercise, and your solution to Requirement 1, what observations can
you offer regarding COQ spending over the two-year period?
128. Design Products is committed to its quality program. It works with all areas of the
company to establish sound quality programs within reasonable budget guidelines. For 2016, it
has budgeted $1,000,000 for prevention costs and $800,000 for appraisal costs. Internal failure
has a budget of $100 per failed item, while external failure has a total budget of $600,000.
Product Testing has proposed to a change in the 2016 budget for a new method of testing
products. If management decides to implement the new method, $2 per unit of appraisal costs
will be saved, up to a level of 200,000 tests. No additional savings are expected past the 200,000
level. The new method involves $110,000 in training costs and $60,000 in yearly testing supplies.
Traditionally, 3 percent of all completed items have to be reworked. External failure costs average
$120 per failed unit. The company's average external failures are 1 percent of units sold. The
company carries no ending inventories.
Required:
1. What is the adjusted budget for appraisal costs, assuming the new method is implemented and
800,000 units are tested during the manufacturing process in 2016?
2. How much do internal failure costs change, assuming 600,000 units are tested under the new
method and it reduces the amount of unacceptable units in the manufacturing process by 40
percent?
3. What would be the change in the external failure budget, assuming external failures are
reduced by 60 percent, assuming the same facts as in Requirement 2?
129. White Financial Services Corporation is engaged in mortgage origination and investment
servicing activities with annual revenues of more than $90 million. Roberta White, CEO, recently
has discovered that errors are costing the company over $800,000 per year. Jeremy Aiken, Vice
President of Sales, dismisses the significance of the errors. Since the cost of errors is less than
1% of revenues, he believes the company should ignore the errors and concentrate instead on
generating additional revenues. The consulting firm that made the discovery proposed to
establish operating procedures for White that would build quality checks into operations. The
interviewing, writing, and training activities associated with this project are expected to cost
$450,000. Once the procedure is in place, the consultant believes, all errors will be eliminated.
Jeremy argues that no system can be error-free and that the procedure is most likely to eliminate
80 percent of the errors. James White, Vice President of Customer Services, suggests that the
company can hire 10 additional workers at an average salary of $30,000 (including fringe
benefits) to double-check the work of people in sensitive areas.
Required:
What do you think White Financial Services Company should do? Support your answer with a
logical analysis of the three alternatives (hire the consulting firm, hire additional workers, or do
nothing about the errors and concentrate on additional revenues).
