130. Pandra Manufacturing specifies the quality characteristic of one of its popular products
to be 0.500 ± 0.020. An analysis of company records for the last two years suggests that the
average cost for warranty repair or replacement is $125 per unit. The customer service manager
is of the opinion that the product is likely to fail during the warranty period when the quality
characteristic differs from the target by more than 0.020 in either direction.
Required:
To gain a better understanding of the impact of quality variation, you, the product manager,
would like to know the following values in a Taguchi Quality Loss Function (QLF),
L
(
x
).
1. Cost coefficient,
k
2. Estimated losses,
L
(
x
), when the actual quality characteristic,
x
, is 0.505. (Round your answer
to four decimal places.)
3. Estimated losses,
L
(
x
), when the actual quality characteristic,
x
, is 0.510. (Round your answer
to two decimal places.)
4. The amount of change in the estimated losses (or total quality cost) when the deviation from
the quality characteristic doubled. What general principle regarding Taguchi Quality Loss
Functions is revealed by this example?
131. Pandra Manufacturing obtained the following measurements on the quality characteristic
of the product from its operations in the last few months:
Observed Quality Characteristic,
x
Probability
0.46 0.05
0.47 0.10
0.48 0.12
0.49 0.15
0.50 0.30
0.51 0.12
0.52 0.10
0.53 0.05
0.54 0.01
The company has determined that no customer will accept any unit that deviates more than 0.04
from the target quality characteristic,
T
, of 0.5. The company estimated that each rejection would
cost the company $500.
Required:
1. Calculate the cost coefficient,
k
, for the Taguchi Quality Loss Function (QLF) based on the
above information.
2. Determine the estimated amount of quality loss,
L
(
x
), for each of the observed values of the
quality characteristic,
x
, presented in the above table.
3. Based on the data you generate in response to Requirement 1 above, determine the expected
loss given the probabilities presented in the above table. Round your answer to three decimal
places.
4. Use the formula
EL
(
x
) =
k
(
σ
2
+
D2
) to verify your answer in (2), where
σ
2 = Σ (x – )f(x)
,
and D = the deviation of the mean value of the quality characteristic from the target value = (
– T
).
132. Steel Inc. specializes in manufacturing ship doors. The blueprint specification for the
thickness of a high-demand model calls for 0.9 ± 0.005 inch. It costs $800 to scrap a part that is
outside of the specification. The thickness measure for the unit just completed is 0.85.
Required:
1. Calculate the value of
k
, the cost coefficient in the Taguchi loss function.
2. Calculate the estimated amount of loss for the unit,
L
(
x
) = 0.85.
133. An electronic component in a computer has an output voltage specification of 100 ±1
millivolts. The loss to the firm for a component that is outside of the specifications is $750. The
output voltage for a sample unit is 101 millivolts.
Required:
1. Calculate the value of
k
, the cost coefficient in the Taguchi Quality Loss Function (QLF).
2. Calculate the amount of loss
L
(101), for the sample unit.
134. One of the concerns with moving to lean manufacturing is the fact that conventional
accounting approaches may discourage such a move. These deficiencies relate to the lag in
recognizing financial benefits from the move to lean.
Required:
According to critics, what are the three primary reasons why improvements in financial results,
after adopting lean manufacturing, typically appear later in conventional accounting statements
than the operating improvements from implementing lean manufacturing?
135. Slumberger Manufacturing Co., Inc. is considering a change in its manufacturing layout
(e.g., to a flexible manufacturing system [FMS] or cellular manufacturing), but it is unsure of the
net benefits it should expect in conjunction with such a move. Company management has asked
you to estimate both financial and nonfinancial effects of the proposed move. In this regard, you
have collected the following information:
Current Situation Revised Layout
Total annual sales $600,000 $800,000
Out-of-pocket costs (% of sales):
Direct materials 23% 20%
Direct labor 9% 7%
Factory overhead 18% 13%
Work-in-Process Inventory $125,000 $90,000
Inventory carrying costs are estimated at 10% per annum.
Required:
1. As a result of the change, inventory carrying costs are expected to change by what amount?
2. If the plant layout change is made, what is the projected amount for
incremental
manufacturing cost for the year, in terms of out–of-pocket costs?
3. What are the projected incremental
financial results
(per year) associated with this change?
4. What are some plausible
nonfinancial performance metrics
that the company might monitor
after implementing the proposed change?
136. Turbo-Oven, Inc. is considering a move to cellular manufacturing. Management of the
company has requested that you, as the management accountant for the organization, supply it
with information that will help inform the decision as to whether or not such a move is desirable.
Your research into past performance of the company as well as extensive discussion with the
manager of operations and the sales manager produced the following information:
Current
Manufacturing
Process Revised
Manufacturing
Layout
Total annual sales $1,400,000 $1,700,000
Out-of-Pocket costs (% of sales):
Direct materials 6% 5%
Direct labor 9% 7%
Factory overhead 10% 8%
Work-in-Process Inventory $400,000 $240,000
Inventory carrying costs are estimated at 12% per annum.
Required:
1. In terms of the above information, provide for management of the company a rationale as to
why you included each of the following items:
a. increase in total sales revenue
b. decrease in direct materials cost as a percentage of sales
c. decrease in holdings of Work–in-Process (WIP) inventory
2. Provide an estimate of each of the following
financial effects
associated with the proposed
move to a cellular manufacturing layout:
a. change in total (out-of-pocket) manufacturing costs
b. reduction in WIP inventory holdings
c. net financial effect of the change, per year
3. In general, what types of costs would need to be incurred in order to reap the benefits outlined
above in Requirement 2?
137. A Cost-of-Quality (COQ) reporting format may be applicable to help support the
sustainability goals of organizations. Indeed, the development of such a reporting framework
would likely be viewed as a significant improvement to an organization’s management accounting
and control system.
Required:
1. Use your knowledge of COQ reporting to speculate on an “environmental assessment”
reporting framework. This tool should identify each aspect of the organization’s activities that
affect the environment, in terms of both living and non-living natural systems (ecosystems),
including land, water, and air. (That is, what are some of the environmental impacts that the
management accounting system could assess and monitor?)
2. In the past, management accountants focused on a traditional approach to environmental risk
management, wherein the focus was on ensuring regulatory compliance (EPA, etc.) in order to
minimize fines, penalties, and legal costs). In today’s business climate, however, more will likely
be expected of the management accountant. What type of opportunities, associated with
environmental performance, might the management accountant suggest to management?
No set solution to the above questions is anticipated. The following notes were taken from
Statement of Management Accounting No. 67, “The Evolution of Accountability—Sustainability
Reporting for Accountants,” Institute of Management Accountants (2008).
138. As noted in Chapter 17, one approach to setting quality standards is to use a Six-Sigma
approach.
Required:
1. What is meant by the term “Six Sigma”?
2. The overall process of implementing process-improvement projects is referred to as DMAIC
(Define, Measure, Analyze, Improve, and Control). Provide an overview of each stage of the
DMAIC specifically within the context of a Six Sigma implementation.