CHAPTER 14: QUALITY AND ENVIRONMENTAL COST MANAGEMENT
1. A quality product or service is one that meets or exceeds customer expectations.
a. True
b. False
2. If costs of quality were evaluated accurately, they would range in the 2 to 4 percent of sales range.
a. True
b. False
3. Customers are concerned with product reliability, durability, fitness for use, and conformance to specifications.
a. True
b. False
4. Prevention costs are incurred to prevent poor quality in products or services being produced.
a. True
b. False
5. Internal failure costs incurred by failure of products to conform to specifications are discovered after sales take
place.
a. True
b. False
6. A quality cost report lists costs for each item within each of four categories.
a. True
b. False
7. In a quality cost report, quality costs are expressed as a percentage of total defective units.
a. True
b. False
8. The zero-defects model claims that it is cost beneficial to reduce nonconforming units to zero.
a. True
b. False
Chapter 14: Quality and Environmental Cost Management
9. According to the robust view, a gain is experienced from varying a product target value.
a. True
b. False
10. Activity-based costing is used to calculate the quality cost per unit of a company’s products.
a. True
b. False
11. Cost information is important to managers, to help them improve managerial planning, control, and decision
making.
a. True
b. False
12. The decision making contexts related to quality cost information are strategic pricing and strategic analysis.
a. True
b. False
13. Cost-volume-profit analysis relies on analysis of fixed and variable costs.
a. True
b. False
14. ISO 9000 is a set of international quality standards which are adopted by companies.
a. True
b. False
15. Continuous auditing of suppliers assures the commitment to continuous improvement
by ISO 9000 certified companies.
a. True
b. False
16. Quality cost performance reports contain two essential elements: actual and expected outcomes.
a. True
b. False
Chapter 14: Quality and Environmental Cost Management
17. The two types of quality performance reports are interim standard and long-range reports.
a. True
b. False
18. Managers use interim quality standards to express quality goals on an interim basis.
a. True
b. False
19. A multiple-period quality trend report is a chart or graph that tracks changes in quality.
a. True
b. False
20. The long-range quality performance report compares actual with final quality costs.
a. True
b. False
21. Environmental costs involves the damage to the environment by inefficient use of materials and energy.
a. True
b. False
22. There are three categories of environmental costs: prevention, internal failure, and external failure.
a. True
b. False
23. Ecoefficiency is the ability to produce goods while reducing the impact on the environment.
a. True
b. False
24. The environmental cost report contains information on the impact of environmental costs of profitability, and
amounts spent on each category of activities.
a. True
b. False
Chapter 14: Quality and Environmental Cost Management
25. The environmental financial statement compares benefits produced with environmental costs within a period.
a. True
b. False
26. Environmental costs of production and post-purchase costs are examples of environmental product costs.
a. True
b. False
27. Full environmental costing is the assignment of only private costs to individual products.
a. True
b. False
28. Full private costing is the assignment of all environmental costs, private and societal, to products.
a. True
b. False
29. Activity-based costing facilitates environmental costing by tracing costs to the responsible products.
a. True
b. False
30. The assignment of costs to environmental activities yields activity rates which are then used to assign costs to
products.
a. True
b. False
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.
Chapter 14: Quality and Environmental Cost Management
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.
Chapter 14: Quality and Environmental Cost Management
46. Quality experts maintain that total quality costs should NOT exceed
a. 2 to 4 percent of sales.
b. 2 to 4 percent of total costs.
c. 2 to 4 percent of profit.
d. profit.
47. Improving quality can increase firm value because
a. firms can increase activities.
b. firms can increase costs.
c. firms can increase customer demand.
d. all of the above.
48. From the operational content view, a quality product or service is one that meets or exceeds
a. customer expectations.
b. customer satisfaction.
c. company targets.
d. company standards.
49. Improving quality is an important competitive issue for
a. manufacturing firms only.
b. service firms only.
c. supplying firms only.
d. all firms.
50. In quality analysis, robustness means the products
a. do not vary from the target value.
b. do have a great deal of variation from the target value.
c. do not have high customer satisfaction.
d. do have high customer satisfaction.
51. Which of the following is a correct meaning(s)for the term zero defects?
a. all products conform to specifications
b. there are no unusable products
c. all products are usable or can be reworked
d. all of the above
Chapter 14: Quality and Environmental Cost Management
52. The measure of how well a product meets its requirements or specifications is called:
a. Service quality
b. Quality of design
c. Quality of conformance
d. Taguchi quality loss function
53. The predetermined amount of defective product that a company permits to be sold is called:
a. Zero defects
b. Kaizen
c. Acceptable quality level
d. Taguchi quality loss function
54. Which of the following is NOT a dimension of quality?
a. performance
b. durability
c. reliability
d. all of the above are dimensions of quality.
55. A defective product is one that does NOT
a. appeal to customers.
b. pass inspection.
c. satisfy customers.
d. conform to specifications.
56. Costs incurred to determine whether products and services are conforming to requirements are called
a. appraisal costs.
b. internal failure costs.
c. external failure costs.
d. prevention costs.
57. The costs incurred because poor quality may or does exist are called:
a. Internal failure costs
b. Costs of quality
c. External failure costs
d. Appraisal costs
Chapter 14: Quality and Environmental Cost Management
58. In-process inspection is a(n)
a. external failure cost.
b. internal failure cost.
c. appraisal cost.
d. prevention cost.
59. An example of a prevention cost is
a. field testing.
b. quality audits.
c. reinspection.
d. repair costs.
60. Quality training programs are classified as
a. external failure costs.
b. internal failure costs.
c. appraisal costs.
d. prevention costs.
61. Costs incurred because products or services fail to meet requirements after delivery to customers are called
a. external failure costs.
b. internal failure costs.
c. appraisal costs.
d. prevention costs.
62. Inspection labor costs are classified as
a. external failure costs.
b. internal failure costs.
c. appraisal costs.
d. prevention costs.
63. Product inspection is a(n)
a. external failure cost.
b. internal failure cost.
c. appraisal cost.
d. prevention cost.
Chapter 14: Quality and Environmental Cost Management
64. Lower sales due to poor product performance is an example of
a. a prevention cost.
b. an internal failure cost.
c. an appraisal cost.
d. external failure costs.
65. Downtime attributed to quality problems is a(n)
a. external failure cost.
b. internal failure cost.
c. appraisal cost.
d. prevention cost.
66. Product recalls are
a. appraisal costs.
b. internal failure costs.
c. external failure costs.
d. prevention costs.
67. Reinspection of reworked products is a(n)
a. external failure cost.
b. internal failure cost.
c. appraisal cost.
d. prevention cost.
68. The costs of a consumer complaint department are
a. external failure costs.
b. internal failure costs.
c. appraisal costs.
d. prevention costs.
69. Warranty work is a(n)
a. external failure cost.
b. internal failure cost.
c. appraisal cost.
d. prevention cost.
Chapter 14: Quality and Environmental Cost Management
70. The method which assumes that variation from target values of a quality characteristic causes hidden quality costs
is called:
a. Multiplier method
b. Market research method
c. Taguchi quality loss function
d. Process acceptance sampling
71. Labor and overhead incurred for rework of defective products found by an inspector is a(n)
a. external failure cost.
b. internal failure cost.
c. appraisal cost.
d. prevention cost.
72. Observable quality costs
a. are costs of defects that can be seen.
b. are those available in the accounting records.
c. are costs of defective units that get to customers.
d. include all costs of quality.
73. Multiple methods of estimating hidden quality costs do NOT include the
a. multiplier method.
b. market research method.
c. process acceptance sampling.
d. Taguchi quality loss function.
74. The method that uses customer surveys and interviews by sales personnel to estimate future profit losses.
a. Multiplier method
b. Taguchi quality loss function
c. Market research method
d. Process acceptance sampling method
75. The method which assumes that the total failure cost is some multiplier of measured failure costs is called:
a. Taguchi quality loss function
b. Market research method
c. Process acceptance sampling
d. Multiplier method
Chapter 14: Quality and Environmental Cost Management
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
a. $166,667.
b. $38,500.
c. $2,200,000.
d. $4,500,000.
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
77. Refer to Figure 14-1. What is k, the constant, in the Taguchi loss function?
a. $60
b. $2.5
c. $5.2
d. $0.5
78. Refer to Figure 14-1. What is the average loss per unit?
a. $12.00
b. $10.80
c. $2.61
d. $2.16
Chapter 14: Quality and Environmental Cost Management
79. Refer to Figure 14-1. What is the cost of hidden loss for production of 50,000 units?
a. $34,722
b. $90,000
c. $108,000
d. $300,000
Chapter 14: Quality and Environmental Cost Management
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
a. $133,334.
b. $400,000.
c. $800,000.
d. $1,200,000.
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
a. total quality costs.
b. total costs.
c. total sales.
d. total defective units.
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
82. Refer to Figure 14-2. For the current year, prevention costs are what percentage of sales?
a. 9.00%
b. 8.25%
c. 7.00%
d. 2.00%
Chapter 14: Quality and Environmental Cost Management
83. Refer to Figure 14-2. For the current year, external failure costs are what percentage of sales?
a. 1.5350%
b. 1.1875%
c. 1.0000%
d. 0.8350%
84. Refer to Figure 14-2. For the current year, appraisal costs are what percentage of sales?
a. 3.333%
b. 0.833%
c. 0.500%
d. 0.333%
85. Refer to Figure 14-2. For the current year, internal failure costs are what percentage of sales?
a. 4.25%
b. 3.25%
c. 2.00%
d. 1.25%
Chapter 14: Quality and Environmental Cost Management
86. The following information pertains to Mesa Verde, Inc., for 2016:
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
a. $500,000.
b. $250,000.
c. $300,000.
d. $420,000.
87. The following information pertains to Mesa Verde, Inc., for 2016:
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?
a. 23.5%
b. 15.0%
c. 6.0%
d. 2.5%
Chapter 14: Quality and Environmental Cost Management
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
88. Refer to Figure 14-3. For the current year, prevention costs are what percentage of sales?
a. 1.50%
b. 0.65%
c. 0.15%
d. 0.05%
89. Refer to Figure 14-3. For the current year, appraisal costs are what percentage of sales? a.
1.40%
b. 1.00%
c. 0.14%
d. 0.40%
90. 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
a. $255,000.
b. $174,000.
c. $91,500.
d. $37,500.
Chapter 14: Quality and Environmental Cost Management
91. Refer to Figure 14-3. For the current year, internal failure costs are what percentage of sales?
a. 4.00%
b. 2.90%
c. 2.50%
d. 1.50%
92. Refer to Figure 14-3. For the current year, external failure costs are what percentage of sales?
a. 4.25%
b. 2.75%
c. 2.50%
d. 1.50%
93. Refer to Figure 14-3. As a result of quality improvements, profits have increased by
a. $97,500.
b. $61,500.
c. $22,500.
d. $15,000.
Chapter 14: Quality and Environmental Cost Management
94. The following information pertains to Longhorn Company for 2016:
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
a. $25,000.
b. $125,000.
c. $180,000.
d. $210,000.
95. The following information pertains to Longhorn Company for 2016:
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?
a. 2.5%
b. 6.0%
c. 15.0%
d. 23.5%
Chapter 14: Quality and Environmental Cost Management
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
96. Refer to Figure 14-4. For the current year, prevention costs are what percentage of sales?
a. 1.50%
b. 0.65%
c. 0.15%
d. 0.05%
97. Refer to Figure 14-4. For the current year, appraisal costs are what percentage of sales?
a. 1.40%
b. 1.00%
c. 0.14%
d. 0.40%
98. Refer to Figure 14-4. For the current year, internal failure costs are what percentage of sales?
a. 4.00%
b. 2.90%
c. 2.50%
d. 1.50%
Chapter 14: Quality and Environmental Cost Management
99. Refer to Figure 14-4. For the current year, external failure costs are what percentage of sales?
a. 4.25%
b. 2.75%
c. 2.50%
d. 1.50%
100. The following information pertains to Molotov, Inc., for 2016:
Sales
$20,000,000
Internal failure costs
600,000
External failure costs
400,000
Appraisal costs
250,000
Prevention costs
100,000
Cost of goods sold
10,000,000
If quality costs were reduced to 2.5 percent of sales, profits would increase by
a. $1,000,000.
b. $850,000.
c. $500,000.
d. $250,000.