Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
Chapter 19 Cost Management: Quality, Time, and the Theory of Constraints
19.1 Apply balanced scorecard (BSC) concepts to the analysis of quality.
1) The number of defects in units shipped to customers as a percentage of total units shipped, is a non–
financial measure.
2) Quality of design measures how closely the characteristics of products or services meet the needs and
wants of customers.
3) Conformance quality is the performance of a product or service relative to its design and product
specifications.
4) In the banking industry, depositing a customer’s check into the wrong bank account is an example of
quality of design failure.
5) The International Standards Organization (ISO) certification registers companies that conform to a
specific level of quality.
6) Costs of quality (COQ) reports usually do not consider opportunity costs.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
7) Design quality refers to the performance of a product or service relative to its design and product
specification.
8) Costs of Quality (COQ) are classified into four categories: prevention costs, appraisal costs, inspection
costs, and warranty costs.
9) The costs relating to product testing are classified as prevention costs.
10) The costs relating to new materials testing are classified as appraisal costs.
11) An example of a nonfinancial Balanced Scorecard measure concerning internal business processes
would be the percentage of products that fail soon after delivery.
12) A measurement of market share is considered a financial measure of customer satisfaction in a
balanced scorecard.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
13) In the incremental unit-time learning model, the incremental unit time decreases by a constant
percentage each time the cumulative quantity of units produced is doubled.
14) An “economy of scale” function is an example of a linear cost function.
15) A learning curve measures the effect of learning on efficiency.
16) Plotting learning curve observations is helpful in selecting the appropriate learning curve model.
17) When new products are introduced, learning-curve effects can have a major influence on production
scheduling.
18) It is appropriate to incorporate expected learning-curve efficiencies when evaluating performance.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
19) The cumulative average-time learning model with a 90% learning curve indicates that if it takes 100
minutes to manufacture the first unit of a new model, then the second unit will take only 90 minutes to
manufacture.
20) The incremental unit-time learning model with a 90% learning curve indicates that if it takes 100
minutes to manufacture the first unit of a new model, then the second unit will take only 90 minutes to
manufacture.
21) A learning curve is a function that measures how labour-hours per unit decrease, as units of
production increase.
22) A COQ report provides information on individual categories, but can not provide information on
interdependencies across the four categories of quality costs.
23) Quality of design measures
A) how closely the characteristics of products or services match the needs and wants of customers.
B) how closely the characteristics of products or services match the needs and wants of employees.
C) how closely the characteristics of products or services match the needs and wants of the Board of
Directors.
D) how closely the characteristics of products or services match the needs and wants of competitors.
E) how closely the characteristics of products or services match the needs and wants of union
representatives.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
24) Conformance quality is
A) the performance of a product or service according to design and production specifications.
B) the performance of a product or service according to design and customer specifications.
C) the performance of a product or service according to competitor information.
D) the performance of a product or service according to design specifications.
E) the performance of a product or service according to employee specifications.
25) Costs of quality include all of the following EXCEPT
A) correction costs.
B) external failure costs.
C) internal failure costs.
D) prevention costs.
E) appraisal costs.
26) Costs incurred in detecting which of the individual units do not conform to specifications are called
A) correction costs.
B) external failure costs.
C) internal failure costs.
D) prevention costs.
E) appraisal costs.
27) Which of the following are typically not included in COQ reports?
A) lost contribution margin from lost sales due to poor quality
B) lost production that results from poor quality
C) lower prices that result from poor quality
D) allocation bases
E) lost contribution margin from lost sales and/or from lost production, nor lower prices that result form
poor quality
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
28) Warranty repair costs are
A) prevention costs.
B) appraisal costs.
C) an internal failure cost.
D) a marketing cost.
E) an external failure cost.
29) Try-Us-First Motors manufactures and sells off-road vehicles. The September sales were $6,000,000.
Monthly design costs are $112,000 and rework is running at $75,000 per month. Its painting department is
fully automated and requires substantial inspection to keep the machines operating properly. An
improperly painted vehicle is very expensive to correct, and inspection hours for the 8,000 vehicles
painted in September totaled 2,000 hours by 14 employees, who earn an average of $28 an hour. Ten litres
of paint were used on average for each vehicle. The standard amount of paint per vehicle is nine litres.
The cost of inspection for September was equal to the budgeted amount of $56,000.
What are appraisal costs as a percentage of sales?
A) 0.93%
B) 1.25%
C) 1.87%
D) 2.20%
E) 2.80%
30) Supplier evaluations are an example of
A) appraisal costs.
B) prevention costs.
C) internal failure costs.
D) design costs.
E) external failure costs.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
31) Internal failure costs include
A) field repairs.
B) rework.
C) liability claims
D) warranty expenses.
E) supplier evaluations.
32) Prevention costs include all of the following EXCEPT
A) quality engineering.
B) design engineering.
C) product testing.
D) supplier evaluations.
E) statistical process control.
33) Appraisal costs include all of the following EXCEPT
A) inspection.
B) spoilage.
C) product testing.
D) process inspection.
E) depreciation on testing equipment.
34) External failure costs include all of the following EXCEPT
A) scrap.
B) customer support.
C) liability claims.
D) transportation costs.
E) warranty costs.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
35) Costs incurred by a nonconforming product detected before it is shipped to customers are
A) prevention costs.
B) appraisal costs.
C) internal failure costs.
D) external failure costs.
E) design costs.
36) Preventive equipment maintenance is an example of
A) prevention costs.
B) appraisal costs.
C) internal failure costs.
D) external failure costs.
E) rework costs.
37) An example of a nonfinancial measure for customer satisfaction is
A) delivery delay.
B) employee turnover.
C) number of defects on the production line.
D) process yield.
E) number of employees trained.
38) An example of a nonfinancial measure for customer satisfaction is
A) Average manufacturing time for for key products.
B) Contribution margin.
C) Percentage of products that fail soon after delivery.
D) Number of employees trained on managing bottleneck operations.
E) Number of units reworked.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
39) What is the time needed to produce the last unit when production doubles from 100 units to the 200
unit level, given that the incremental unit time learning model has a 60% learning curve, and the
corresponding time at the 100 unit level of production is 4.0 minutes?
A) 8.0 minutes
B) 6.4 minutes
C) 4.0 minutes
D) 2.4 minutes
E) 1.6 minutes
40) A nonlinear cost function
A) has two constants and a single slope.
B) does not effectively describe the behaviour of costs all of the time.
C) never describes the behaviour of costs in relation to the cost driver.
D) always describes the behaviour of costs in relation to the cost drivers.
E) means the relevant range cannot be determined for that cost.
41) When an average unit of time declines by a constant percentage each time that the cumulative
quantity of units produced is doubled, it is known as
A) cumulative average time.
B) incremental unit time.
C) last unit time.
D) relative unit time.
E) cumulative unit time.
42) A learning curve is a function
A) that measures the decline in labour-hours per unit due to workers becoming better at a job.
B) that increases at a greater rate as workers become more familiar with their tasks.
C) where unit costs increase as productivity increases.
D) that is linear.
E) that measures productivity improvements from new technology.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
43) An experience curve
A) is a narrower application of the learning curve.
B) measures the decline in cost per unit as production decreases for various value-chain functions such as
marketing as production increases.
C) only measures the decline in labour-hours per unit as units produced increases.
D) measures the increase in cost per unit as productivity increases.
E) measures the increase in labour-hours per unit as units produced increases.
44) To complete the first setup on a new machine took an employee 200 minutes. Using an 80%
cumulative average-time learning curve indicates that the second setup on the new machine is expected
to take
A) 160 minutes.
B) 120 minutes.
C) 80 minutes.
D) 60 minutes.
E) 128 minutes.
45) To complete the first setup on a new machine took an employee 200 minutes. Using an 80%
incremental unit-time learning curve indicates that the second setup on the new machine is expected to
take
A) 160 minutes.
B) 120 minutes.
C) 80 minutes.
D) 60 minutes.
E) 128 minutes.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
46) Vestor Ltd. has estimated a 90% cumulative average-time learning curve applies to labour time to
manufacture its new product. The first unit took 18 hours. If Vestor’s estimates are correct, how many
hours will be used to manufacture 4 total units?
A) 14.58 hours
B) 64.80 hours
C) 72.00 hours
D) 64.01 hours
E) 58.32 hours
47) Vestor Ltd. has estimated a 90% incremental unit time learning curve applies to labour time to
manufacture its new product. The first unit took 18 hours. If Vestor’s estimates are correct, how many
hours will be used to manufacture 4 total units?
A) 14.58 hours
B) 64.80 hours
C) 72.00 hours
D) 64.01 hours
E) 58.32 hours
48) Discuss how a manufacturer of personal computers such as Dell Computer can benefit from the
introduction of a quality improvement program.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
49) Nidek manufactures sportswear. Classify each of the following quality costs as prevention, appraisal,
internal failure or external failure.
a. Disposal of spoiled work in process
b. Downtime due to quality problems
c. Expediting work to meet delivery schedule
d. Field testing
e. Maintaining a complaint department
f. Product liability
g. Quality training
h. Reinspection
i. Rework direct manufacturing labour and overhead
j. Scrap
k. Testing and inspecting of machinery
l. Testing and inspecting of direct materials
m. Utilities in inspection area of plant
n. Warranty repairs
50) The two basic aspects of quality are quality of design and conformance quality. Define and give an
example of each.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
51) The Door Company manufactures doors. Classify each of the following quality costs as prevention
costs, appraisal costs, internal failure costs, or external failure costs.
a. Retesting of reworked products
b. Downtime due to quality problems
c. Analysis of the cause of defects in production
d. Depreciation of test equipment
e. Warranty repairs
f. Lost sales arising from a reputation for poor quality
g. Quality circles
h. Rework direct manufacturing labour and overhead
i. Net cost of spoilage
j. Technical support provided to suppliers
k. Audits of the effectiveness of the quality system
l. Plant utilities in the inspection area
m. Reentering data because of keypunch errors
_______________ Prevention costs
_______________ Appraisal costs
_______________ Internal failure costs
_______________ External failure costs
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
52) Cari and Jereme 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
management.
Required:
Identify four categories of quality costs. In addition, identify three items that would be classified in each
of the categories.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
53) Define cost of quality (COQ), list the four categories, and provide an example of each.
54) Compare financial and nonfinancial performance, and explain why planning and control systems
should consider both.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
55) A corporation can measure its quality performance by using financial or nonfinancial measures of
quality. Discuss the merits of each method and whether the use of one precludes the use of the other.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
56) Each time Maiertree Care hires a new employee it must wait for some period of time before the
employee can meet production standards. Management is unsure of the learning curve in its operations
but it knows the first job by a new employee averages 60 hours and the second job averages 48 hours.
Assume all jobs to be equal in size.
Required:
a. What is the learning curve percentage, assuming the cumulative average-time method?
b. What is the time for a new employee to build 16 units with this learning curve using the cumulative
average-time method? Assume the rate of learning factor is –0.1520.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
57) Andrew Pallet Co., Inc. manufactures pallets for various manufacturing companies. Each new
employee takes 10 hours to make the first pallet and 8 hours to make the second. The manufacturing
overhead charge per hour is $80.
Required:
a. What is the learning curve percentage assuming the cumulative average method?
b. What is the time needed to build 8 pallets by a new employee using the cumulative average-time
method? Assume the rate of learning factor is –0.1520.
c. What is the time needed to produce the 16th pallet by a new employee using the incremental unit–
time method? Assume the rate of learning factor is -0.3219.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
58) Harry’s Picture manufactures various picture frames. Each new employee takes 5 hours to make the
first picture frame and 4 hours to make the second. The manufacturing overhead charge per hour is $20.
Required:
a. What is the learning-curve percentage, assuming the cumulative average method?
b. What is the time needed to build 8 picture frames by a new employee using the cumulative average–
time method? Assume the rate of learning factor is -0.1520.
c. What is the time needed to produce the 16th frame by a new employee using the incremental unit-
time method? Assume the rate of learning factor is -0.3219.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 19 – Cost Management: Quality, Time, and the Theory of Constraints
59) Joe’s Copy Centre hires a new employee. Joe knows he has to be patient with the employee until the
employee gains enough experience to meet production standards. Joe is unsure of the learning curve in
his operation, but he knows the first job by a new employee averages 40 minutes and the second job
averages 32 minutes. Assume all jobs to be equal in size.
Required:
a. What is the learning-curve percentage, assuming the cumulative average-time method?
b. What is the time for a new employee to do 32 jobs with this learning curve using the cumulative
average-time method? You may use an index of -0.1520.