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Chapter 14--Quality and Environmental Cost Management Key
1. A quality product or service is one that meets or exceeds customer expectations.
2. If costs of quality were evaluated accurately, they would range in the 2 to 4 percent of sales range.
3. Customers are concerned with product reliability, durability, fitness for use, and conformance to
specifications.
4. Prevention costs are incurred to prevent poor quality in products or services being produced.
5. Internal failure costs incurred by failure of products to conform to specifications are discovered after sales
take place.
6. A quality cost report lists costs for each item within each of four categories.
7. In a quality cost report, quality costs are expressed as a percentage of total defective units.
8. The zero-defects model claims that it is cost beneficial to reduce nonconforming units to zero.
9. According to the robust view, a gain is experienced from varying a product target value.
10. Activity-based costing is used to calculate the quality cost per unit of a company’s products.
11. Cost information is important to managers, to help them improve managerial planning, control, and decision
making.
12. The decision making contexts related to quality cost information are strategic pricing and strategic analysis.
13. Cost-volume-profit analysis relies on analysis of fixed and variable costs.
14. ISO 9000 is a set of international quality standards which are adopted by companies.
15. Continuous auditing of suppliers assures the commitment to continuous improvement by ISO 9000 certified
companies.
16. Quality cost performance reports contain two essential elements: actual and expected outcomes.
17. The two types of quality performance reports are interim standard and long-range reports.
18. Managers use interim quality standards to express quality goals on an interim basis.
19. A multiple-period quality trend report is a chart or graph that tracks changes in quality.
20. The long-range quality performance report compares actual with final quality costs.
21. Environmental costs involves the damage to the environment by inefficient use of materials and energy.
22. There are three categories of environmental costs: prevention, internal failure, and external failure.
23. Ecoefficiency is the ability to produce goods while reducing the impact on the environment.
24. The environmental cost report contains information on the impact of environmental costs of profitability,
and amounts spent on each category of activities.
25. The environmental financial statement compares benefits produced with environmental costs within a
period.
26. Environmental costs of production and post-purchase costs are examples of environmental product costs.
27. Full environmental costing is the assignment of only private costs to individual products.
28. Full private costing is the assignment of all environmental costs, private and societal, to products.
29. Activity-based costing facilitates environmental costing by tracing costs to the responsible products.
30. The assignment of costs to environmental activities yields activity rates which are then used to assign costs
to products.
31. A measure of how well requirements are met by a product is called __________ .
32. The predetermined allowable amount of defective product allowed to be sold is called __________
33. A __________ report lists quality costs for each product within four quality cost categories.
34. Costs which exist because poor quality may or does exits are called __________ .
35. __________ cost information is used to evaluate overall performance of quality improvement programs.
36. __________ analysis relies in the analysis of fixed and variable costs together with cost.
37. The __________ report is used to evaluate budgeted quality costs goals.
38. A multi-year trend graph showing direction and magnitude of change since the implementation of a total
quality program is called the __________ report.
39. Environmental costs caused internally but paid by outside parties are called __________ costs.
40. Costs incurred and paid for by the company are called __________ costs.
41. The lowest environmental costs are attainable at the __________ point.
42. Environmental cost redesign would not be a part of an __________ report.
43. The cost of processes which produce, market, delivers, and dispose of products are called __________
costs.
44. The assignment of private and societal costs to products is called __________ costing.
45. The assignment of only private costs to individual products is called __________ costing.
46. Quality experts maintain that total quality costs should NOT exceed
47. Improving quality can increase firm value because
48. From the operational content view, a quality product or service is one that meets or exceeds
49. Improving quality is an important competitive issue for
50. In quality analysis, robustness means the products
51. Which of the following is a correct meaning(s)for the term zero defects?
52. The measure of how well a product meets its requirements or specifications is called:
53. The predetermined amount of defective product that a company permits to be sold is called:
54. Which of the following is NOT a dimension of quality?
55. A defective product is one that does NOT
56. Costs incurred to determine whether products and services are conforming to requirements are called
57. The costs incurred because poor quality may or does exist are called:
58. In-process inspection is a(n)
59. An example of a prevention cost is
60. Quality training programs are classified as
61. Costs incurred because products or services fail to meet requirements after delivery to customers are called
62. Inspection labor costs are classified as
63. Product inspection is a(n)
65. Downtime attributed to quality problems is a(n)
66. Product recalls are
67. Reinspection of reworked products is a(n)
68. The costs of a consumer complaint department are
69. Warranty work is a(n)
70. The method which assumes that variation from target values of a quality characteristic causes hidden quality
costs is called:
71. Labor and overhead incurred for rework of defective products found by an inspector is a(n)
72. Observable quality costs
73. Multiple methods of estimating hidden quality costs do NOT include the
74. The method that uses customer surveys and interviews by sales personnel to estimate future profit losses.
75. The method which assumes that the total failure cost is some multiplier of measured failure costs is called:
76. Assume the multiplier method is used and the multiplier is determined to be 4 based on experience.
Accounting records show that the measured external failure costs are $550,000. Then the total external failure
costs are estimated to be
77. Figure 14-1
Phillips Screw Company produces screw fittings. It is determined that T = 1 inch in diameter. Specification
limits allow a variation of plus or minus 0.5 inches. Products produced at values beyond the specification limits
lose $15. A sample of five units produced showed the following values:
Unit Number
Actual Diameter (Y)
Unit 1
1.2
Unit 2
1.3
Unit 3
0.8
Unit 4
0.9
Unit 5
1.0
Refer to Figure 14-1. What is k, the constant, in the Taguchi loss function?
78. Figure 14-1
Phillips Screw Company produces screw fittings. It is determined that T = 1 inch in diameter. Specification
limits allow a variation of plus or minus 0.5 inches. Products produced at values beyond the specification limits
lose $15. A sample of five units produced showed the following values:
Unit Number
Actual Diameter (Y)
Unit 1
1.2
Unit 2
1.3
Unit 3
0.8
Unit 4
0.9
Unit 5
1.0
Refer to Figure 14-1. What is the average loss per unit?
79. Figure 14-1
Phillips Screw Company produces screw fittings. It is determined that T = 1 inch in diameter. Specification
limits allow a variation of plus or minus 0.5 inches. Products produced at values beyond the specification limits
lose $15. A sample of five units produced showed the following values:
Unit Number
Actual Diameter (Y)
Unit 1
1.2
Unit 2
1.3
Unit 3
0.8
Unit 4
0.9
Unit 5
1.0
Refer to Figure 14-1. What is the cost of hidden loss for production of 50,000 units?
80. Assume the multiplier method is used and the multiplier is determined to be 3 based on experience.
Accounting records show that the measured external failure costs are $400,000. Then the hidden external failure
costs are estimated to be
81. In a quality cost report, quality costs are grouped into categories and then each category of quality costs is
expressed as a percentage of
82. Figure 14-2
At the beginning of the year, Devonshire Company initiated a quality improvement program. The program was
successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program,
the following data were collected for the current and preceding years:
Preceding Year
Current Year
Sales
$2,400,000
$2,400,000
Quality training
30,000
48,000
Material inspections
7,000
8,000
Scrap
48,000
30,000
Rework
60,000
48,000
Product inspection
10,000
12,000
Product warranty
36,000
24,000
Refer to Figure 14-2. For the current year, prevention costs are what percentage of sales?
83. Figure 14-2
At the beginning of the year, Devonshire Company initiated a quality improvement program. The program was
successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program,
the following data were collected for the current and preceding years:
Preceding Year
Current Year
Sales
$2,400,000
$2,400,000
Quality training
30,000
48,000
Material inspections
7,000
8,000
Scrap
48,000
30,000
Rework
60,000
48,000
Product inspection
10,000
12,000
Product warranty
36,000
24,000
Refer to Figure 14-2. For the current year, external failure costs are what percentage of sales?
84. Figure 14-2
At the beginning of the year, Devonshire Company initiated a quality improvement program. The program was
successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program,
the following data were collected for the current and preceding years:
Preceding Year
Current Year
Sales
$2,400,000
$2,400,000
Quality training
30,000
48,000
Material inspections
7,000
8,000
Scrap
48,000
30,000
Rework
60,000
48,000
Product inspection
10,000
12,000
Product warranty
36,000
24,000
Refer to Figure 14-2. For the current year, appraisal costs are what percentage of sales?
85. Figure 14-2
At the beginning of the year, Devonshire Company initiated a quality improvement program. The program was
successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program,
the following data were collected for the current and preceding years:
Preceding Year
Current Year
Sales
$2,400,000
$2,400,000
Quality training
30,000
48,000
Material inspections
7,000
8,000
Scrap
48,000
30,000
Rework
60,000
48,000
Product inspection
10,000
12,000
Product warranty
36,000
24,000
Refer to Figure 14-2. For the current year, internal failure costs are what percentage of sales?
86. The following information pertains to Mesa Verde, Inc., for 2014:
Sales
$2,000,000
Internal failure costs
250,000
External failure costs
100,000
Appraisal costs
70,000
Prevention costs
50,000
Cost of goods sold
750,000
If quality costs were reduced to 2.5 percent of sales, profits would increase by
87. The following information pertains to Mesa Verde, Inc., for 2014:
Sales
$2,000,000
Internal failure costs
250,000
External failure costs
100,000
Appraisal costs
70,000
Prevention costs
50,000
Cost of goods sold
750,000
Quality costs are what percentage of sales?
88. Figure 14-3
At the beginning of the year, Kowalski Company initiated a quality improvement program. The program was
successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program,
the following data were collected for the current and preceding years:
Preceding Year
Current Year
Sales
$3,000,000
$3,000,000
Quality training
3,000
4,500
Material inspections
7,500
12,000
Scrap
60,000
45,000
Rework
120,000
75,000
Product inspection
15,000
30,000
Product warranty
105,000
82,500
Refer to Figure 14-3. For the current year, prevention costs are what percentage of sales?
89. Figure 14-3
At the beginning of the year, Kowalski Company initiated a quality improvement program. The program was
successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program,
the following data were collected for the current and preceding years:
Preceding Year
Current Year
Sales
$3,000,000
$3,000,000
Quality training
3,000
4,500
Material inspections
7,500
12,000
Scrap
60,000
45,000
Rework
120,000
75,000
Product inspection
15,000
30,000
Product warranty
105,000
82,500
Refer to Figure 14-3. For the current year, appraisal costs are what percentage of sales?
90. Figure 14-3
At the beginning of the year, Kowalski Company initiated a quality improvement program. The program was
successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program,
the following data were collected for the current and preceding years:
Preceding Year
Current Year
Sales
$3,000,000
$3,000,000
Quality training
3,000
4,500
Material inspections
7,500
12,000
Scrap
60,000
45,000
Rework
120,000
75,000
Product inspection
15,000
30,000
Product warranty
105,000
82,500
Refer to Figure 14-3. If quality costs had been reduced to 2.5 percent of sales in the current year, profits would have increased by
91. Figure 14-3
At the beginning of the year, Kowalski Company initiated a quality improvement program. The program was
successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program,
the following data were collected for the current and preceding years:
Preceding Year
Current Year
Sales
$3,000,000
$3,000,000
Quality training
3,000
4,500
Material inspections
7,500
12,000
Scrap
60,000
45,000
Rework
120,000
75,000
Product inspection
15,000
30,000
Product warranty
105,000
82,500
Refer to Figure 14-3. For the current year, internal failure costs are what percentage of sales?
92. Figure 14-3
At the beginning of the year, Kowalski Company initiated a quality improvement program. The program was
successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program,
the following data were collected for the current and preceding years:
Preceding Year
Current Year
Sales
$3,000,000
$3,000,000
Quality training
3,000
4,500
Material inspections
7,500
12,000
Scrap
60,000
45,000
Rework
120,000
75,000
Product inspection
15,000
30,000
Product warranty
105,000
82,500
Refer to Figure 14-3. For the current year, external failure costs are what percentage of sales?
93. Figure 14-3
At the beginning of the year, Kowalski Company initiated a quality improvement program. The program was
successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program,
the following data were collected for the current and preceding years:
Preceding Year
Current Year
Sales
$3,000,000
$3,000,000
Quality training
3,000
4,500
Material inspections
7,500
12,000
Scrap
60,000
45,000
Rework
120,000
75,000
Product inspection
15,000
30,000
Product warranty
105,000
82,500
Refer to Figure 14-3. As a result of quality improvements, profits have increased by
94. The following information pertains to Longhorn Company for 2014:
Sales
$1,000,000
Internal failure costs
125,000
External failure costs
50,000
Appraisal costs
35,000
Prevention costs
25,000
Cost of goods sold
375,000
If quality costs were reduced to 2.5 percent of sales, profits would increase by
95. The following information pertains to Longhorn Company for 2014:
Sales
$1,000,000
Internal failure costs
125,000
External failure costs
50,000
Appraisal costs
35,000
Prevention costs
25,000
Cost of goods sold
375,000
Quality costs are what percentage of sales?
96. Figure 14-4
At the beginning of the year, Marinov Corporation initiated a quality improvement program. The program was
successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program,
the following data were collected for the current and preceding years:
Preceding Year
Current Year
Sales
$2,000,000
$2,000,000
Quality training
2,000
3,000
Packaging inspections
5,000
8,000
Downtime
40,000
30,000
Reinspection
80,000
50,000
Product inspection
10,000
20,000
Product liability
70,000
55,000
Refer to Figure 14-4. For the current year, prevention costs are what percentage of sales?
97. Figure 14-4
At the beginning of the year, Marinov Corporation initiated a quality improvement program. The program was
successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program,
the following data were collected for the current and preceding years:
Preceding Year
Current Year
Sales
$2,000,000
$2,000,000
Quality training
2,000
3,000
Packaging inspections
5,000
8,000
Downtime
40,000
30,000
Reinspection
80,000
50,000
Product inspection
10,000
20,000
Product liability
70,000
55,000
Refer to Figure 14-4. For the current year, appraisal costs are what percentage of sales?
98. Figure 14-4
At the beginning of the year, Marinov Corporation initiated a quality improvement program. The program was
successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program,
the following data were collected for the current and preceding years:
Preceding Year
Current Year
Sales
$2,000,000
$2,000,000
Quality training
2,000
3,000
Packaging inspections
5,000
8,000
Downtime
40,000
30,000
Reinspection
80,000
50,000
Product inspection
10,000
20,000
Product liability
70,000
55,000
Refer to Figure 14-4. For the current year, internal failure costs are what percentage of sales?
99. Figure 14-4
At the beginning of the year, Marinov Corporation initiated a quality improvement program. The program was
successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program,
the following data were collected for the current and preceding years:
Preceding Year
Current Year
Sales
$2,000,000
$2,000,000
Quality training
2,000
3,000
Packaging inspections
5,000
8,000
Downtime
40,000
30,000
Reinspection
80,000
50,000
Product inspection
10,000
20,000
Product liability
70,000
55,000
Refer to Figure 14-4. For the current year, external failure costs are what percentage of sales?
