27. United Insurance Agency incurred the following activity costs related to service quality.
Total sales
$1,000,000
Costs of quality:
Prevention
50,000
Appraisal
47,000
Internal failure
36,000
External failure
64,000
Costs of conformance total
a.
$15,500.
b.
$55,000.
c.
$120,000.
d.
$131,400.
28. Internal reports on quality at the Acme Publishing Company generated the following information for
the Trade Division for the first three months of the year:
Total sales
$1,000,000
Costs of quality:
Prevention
44,000
Appraisal
47,000
Internal failure
36,000
External failure
64,000
Compute the total costs of quality as a percentage of sales.
a.
2.4%
b.
4.4%
c.
12.6%
d.
19.1%
29. Internal reports on quality at the Acme Publishing Company generated the following information for
the Trade Division for the first three months of the year:
Total sales
$1,000,000
Costs of quality:
Prevention
44,000
Appraisal
47,000
Internal failure
36,000
External failure
64,000
Compute the ratio of costs of conformance to total costs of quality.
a.
44.6%
b.
47.6%
c.
50.1%
d.
100%
30. Internal reports on quality at the Acme Publishing Company generated the following information for
the Trade Division for the first three months of the year:
Total sales
$1,000,000
Costs of quality:
Prevention
50,000
Appraisal
47,000
Internal failure
36,000
External failure
64,000
Compute the ratio of costs of nonconformance to total costs of quality.
a.
39.4%
b.
50.8%
c.
60.5%
d.
100%
31. Internal reports on quality at the Acme Publishing Company generated the following information for
the Trade Division for the first three months of the year:
Total sales
$1,000,000
Costs of quality:
Prevention
22,500
Appraisal
47,000
Internal failure
36,000
External failure
64,000
Compute the costs of nonconformance as a percentage of total sales.
a.
12.0%
b.
5.4%
c.
1.3%
d.
10%
32. Which of the following specific measures of vendor quality would be used when evaluating vendors
that supply a company with direct materials?
a.
Defect-free material as a percentage of total materials received
b.
Number of customer complaints
c.
Time it takes to make a product
d.
All would be considered to assess vendor quality of direct materials.
33. XYZ Cosmetics, Inc., has developed a set of nonfinancial measures to evaluate on-time product
delivery performance for one of its best-selling cosmetics. The following data have been generated for
the past four weeks:
Purchase
Production
Order
Cycle
Delivery
Week
Lead Time
Time
Time
1
2.4 days
3.5 days
4.0 days
2
2.3 days
3.4 days
3.6 days
3
2.4 days
3.3 days
3.4 days
4
2.2 days
3.1 days
3.7 days
Compute total delivery cycle time for each week and evaluate the product delivery performance.
Which area still needs management’s attention?
a.
Purchase order lead time
b.
Production cycle time
c.
Delivery time
d.
None, all have improved over the past four weeks.
34. XYZ Cosmetics, Inc., has developed a set of nonfinancial measures to evaluate on-time product
delivery performance for one of its best-selling cosmetics. The following data have been generated for
the past four weeks:
Purchase
Order
Delivery
Week
Lead Time
Time
1
2.4 days
4.0 days
2
2.0 days
3.6 days
3
2.4 days
3.4 days
4
2.5 days
3.3 days
Compute total delivery cycle time for Week 2.
a.
3.0 days
b.
6.4 days
c.
8.7 days
d.
7.0 days
35. W. Edwards Deming stressed improved quality as a means of improving a company’s
a.
efficiency and profits.
b.
product flow.
c.
reputation.
d.
customer base.
36. Which company improved by using the Six Sigma quality standard?
a.
Disney
b.
Lucent Technologies
c.
Motorola
d.
Amazon.com
37. The term given to the act of a company comparing its processes to similar processes in a successful
company is called
a.
process mapping.
b.
TQM.
c.
benchmarking.
d.
return on quality.
38. The award given to companies that achieve distinctive results in implementing total quality control is
the
a.
ISO.
b.
Malcolm Baldrige Quality Award.
c.
Deming Application Prize.
d.
Kaizen Prize.
39. Which of these is not a category considered for evaluation when awarding the Malcolm Baldrige
Quality Award?
a.
Business results
b.
Leadership
c.
Net operating income
d.
Human resource focus
40. With which of the following products would the ISO most likely deal?
a.
Office chairs
b.
Stereo speakers
c.
Computer disks
d.
Coffee mugs
SHORT ANSWER
1. Identify and describe three traits that differentiate management information systems (MIS) from
traditional management accounting techniques.
2. The following statement appears in the annual report of Ryan, Inc., for the year ended January 1, 2008:
“We are confident that our ever-increasing emphasis on customer service will enhance our reputation
as the finest retailer in our industry.” Identify two nonfinancial measures of good quality and two
nonfinancial measures of poor quality Ryan, Inc., might apply.
3. All-aboard Travel Agency incurred the following activity costs related to the quality of service.
Identify those costs that are costs of conformance (CC) and those costs that are costs of
nonconformance (CN).
_____ a. Reservation processing improvements
_____ b. Customer complaint processing
_____ c. Personnel training
_____ d. Computer downtime
_____ e. Proofreading tickets and confirmations
4. Travis Morgan is the chief accountant for Hill Industries. The company has three divisions that
manufacture computer disk drives. The industry is very competitive, and Hill Industries has lost
market share in each of the last four years. Three years ago, management announced a companywide
restructuring and the adoption of total quality management. Since that time, each of the divisions has
been allowed to chart its own path toward TQM. Travis Morgan is new to the company and has asked
to see summary figures of the costs of quality for each of the divisions. The following data for the past
six months were presented to him:
L.A. County
Division
Orange County
Division
San Diego
County Division
Company
Totals
Sales
$1,125,000
$1,050,000
$1,200,000
$3,375,000
Appraisal costs
$ 18,640
$ 11,160
$ 18,900
$ 48,700
External failure costs
18,100
22,600
12,100
52,800
Internal failure costs
16,400
21,900
14,300
52,600
Prevention costs
16,660
10,140
28,100
54,900
Total costs of quality
$ 69,800
$ 65,800
$ 73,400
$ 209,000
Evaluate the three divisions’ programs by first computing the costs of conformance and the costs of
nonconformance of each division. Also compute quality costs as a percentage of sales for each
division. Identify the division that is developing the strongest quality program. Which division has
been slowest to react to the management directive of TQM? Defend your answers. Round percentages
to three places beyond the decimal point.
5. The Mahola Company operates as three autonomous divisions. Each division has a general manager in
charge of product development, production, and distribution. Management recently adopted total
quality management and the divisions now track, record, and analyze their costs and nonfinancial
measures of quality. All three divisions are competing in a worldwide, highly competitive
marketplace. Sales and quality-related data for April are summarized below.
North Division East Division West Division
North Division
East Division
West
Division
Annual sales
$12,000,000
$9,000,000
$14,000,000
Costs of quality:
Setup for testing
$ 73,000
$ 111,000
$ 190,300
Quality audits
78,000
260,000
142,800
Failure analysis
125,000
15,950
93,300
Quality training of employees
145,500
180,000
280,700
Scrap and rework
259,000
10,800
167,200
Preventive maintenance
146,000
139,500
130,900
Warranty claims
391,250
95,100
321,200
Customer service
253,500
227,850
182,800
Quality engineering
344,500
418,500
428,400
Product simulation and
development
41,000
178,000
170,900
Losses caused by vendor scrap
84,000
18,250
89,500
Returned goods
591,250
172,050
476,000
Total costs of quality
$ 2,532,000
$1,827,000
$ 2,674,000
North
Division
East Division
West
Division
Nonfinancial measures of quality:
Defective parts per million
4,910
1,704
3,540
Returned order percentage
7.40%
2.10%
4.20%
Customer complaints
50
16
30
Number of warranty claims
29
10
17
a. Prepare an analysis of the costs of quality of the three divisions. Categorize the costs as follows:
costs of conformance with subsets of prevention costs and appraisal costs, and costs of
nonconformance with subsets of internal failure costs and external failure costs. Compute the total
costs for each category for each division.
b. Compute the percentage of sales of each cost–of-quality total for each division. Round percentages
to two places beyond the decimal point.
c. Interpret the cost-of-quality data for each division. Is each division’s product of high or low quality?
Why? Are the divisions headed in the right direction to be globally competitive?
d. Evaluate the nonfinancial measures of quality in terms of customer satisfaction. Explain your
answer.
6. Linda Klein is the chief accountant for Hogan Industries. The company has three divisions that
manufacture wind velocity gauges. The industry is very competitive, and Hogan Industries has lost
market share in each of the last four years. Three years ago, management announced a companywide
restructuring and the adoption of total quality management. Since that time, each of the divisions has
been allowed to chart its own path toward TQM. Klein is new to the company and has asked to see
summary figures of the costs of quality for each of the divisions. The following data for the past six
months were presented to her:
Clarion County
Division
Jefferson
County Division
Crawford
County Division
Company
Totals
Sales
$2,200,400
$2,100,900
$2,300,100
$6,601,400
Appraisal costs
$ 41,340
$ 20,980
$ 44,210
$ 106,530
External failure costs
37,980
53,560
23,450
114,990
Internal failure costs
31,100
49,780
28,450
109,330
Prevention costs
44,680
18,880
60,120
123,680
Total costs of quality
$ 155,100
$ 143,200
$ 156,230
$ 454,530
Evaluate the three divisions’ programs by first computing the costs of conformance and the costs of
nonconformance of each division. Also compute quality costs as a percentage of sales for each
division. Identify the division that is developing the strongest quality program. Which division has
been slowest to react to the management directive of TQM? Defend your answers. Round percentages
to three places beyond the decimal point.
7. Discuss how the importance of product and service quality is recognized in industry today. Site
examples of awards and organizations in your discussion.