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Chapter 17 - The Management and Control of Quality
CHAPTER 17: THE MANAGEMENT AND CONTROL OF QUALITY
QUESTIONS
17-1 As shown in Exhibit 17.1, investments in quality can lead to improved business
processes, which in turn result in improved quality of outputs (goods and services).
Improvement in quality of outputs reduces external failure costs (e.g., warranty
expenses), reduces the amount of inventory, can lower total manufacturing costs
(e.g., inspection, rework, and inventory control costs). On the revenue side,
improvements in quality can result in an improved product image of the company in
17-2 The American Heritage Dictionary defines quality as: (1) a characteristic or attribute
From a managerial perspective, “quality” can be defined as the degree of conformity
between what a customer receives and what a customer is promised. Alternatively,
we can conceptualize “quality” as the total level of satisfaction received by the
customer.
For purposes of management accounting and control, “quality” can be broken down
performance quality failures.
17-3 Traditional accounting systems do not attempt to track the total cost of quality
(COQ). That is, quality-related costs are spread throughout various accounts,
including overhead, selling, general, and administrative expenses. As a result,
17-4 As illustrated in Exhibit 17.3, a comprehensive framework for managing quality
consists of a number of elements and characteristics. For example, the driving force
behind the framework is the goal of understanding and then satisfying customer
17-1
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Chapter 17 - The Management and Control of Quality
analysis of both financial and nonfinancial quality indicators. Fourth, techniques from
outside of accounting (e.g., Taguchi loss functions, Six-Sigma goals, Pareto charts,
activities).
17-5 Six Sigma is an analytical method designed to achieve near-perfect results in terms
of quality. In statistics, the Greek letter sigma stands for standard deviation (i.e., a
measure of dispersion around a mean value). On a standard normal bell curve, one
sigma above and below the mean covers approximately 68% of the area. The
In terms of implementing Six Sigma, organizations typically use a DMAIC process.
In the Define stage, managers identify the underlying quality problem, establish
baseline measures and benchmarks (goals for improvement), and agree upon
measures of success.
In the Measurement stage, the Six-Sigma team studies and evaluates relevant
measurement systems to determine whether they are capable of measuring key
inputs and quality attributes (e.g., product dimensions) with the desired level of
accuracy.
In the Analysis stage, the team performs graphical and statistical analyses in order
the optimal conditions needed to operate the process.
In the final stage, Control, the team implements an on-going auditing and control
mechanism to help ensure the sustainability of the new process.
17-6 A goalpost conformance specifies quality as a range around the target (or ideal)
17-7 Taguchi argues that any variation from the exact specifications entails a cost or loss
to the firm and that this loss is a quadratic function—that is, the loss grows larger as
the variation from target, in either direction, increases.
17-2
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Chapter 17 - The Management and Control of Quality
global competitive environment, these quality costs increase rapidly as customers
become ever more demanding for complete satisfaction.
17-8 A Cost-of-Quality (COQ) report describes quality cost items a firm incurred during
of their actions on quality costs and to pinpoint areas that need attention.
17-9 In most cases, external failure costs (of the four categories) would be most
damaging to the organization. Some costs within this category (e.g., product-liability
17-10 From a design standpoint, the following are desirable qualities (attributes) of a Cost-
of-Quality (COQ) reporting system:
The system collects costs across the entire value chain, both internal and
The system focuses on costing of activities (i.e., uses data obtained from an
ABC system).
The system includes both out-of-pocket and opportunity costs (the latter occur
The system reports data in a time-series fashion (this would allow managers to
assess the financial effects of spending and investments in quality; it would also
allow managers to assess trade-offs between COQ categories over time).
17-11 Tools for identifying and/or correcting quality problems include:
Control charts—Graph that depict successive observations taken at a constant
interval with the horizontal line representing time intervals, batch number, or
production run and the vertical line representing a measure of conformance to the
quality specification.
17-3
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Chapter 17 - The Management and Control of Quality
Histograms—A graphical representation of the frequency of events or causes of an
indicated (i.e., identified) quality problem.
17-4
Chapter 17 - The Management and Control of Quality
BRIEF EXERCISES
17-12 Each TV set contains 100 components; thus, if each component is produced
according to a 3-sigma quality level, then the probability that a given unit will be
17-13 The estimated cost coefficient, k, in the Taguchi loss function, L(x), is calculated
as follows:
L(x) = k (x − T)2
17-14 The estimated total quality loss (cost), L(x), using the Taguchi loss function is
calculated as follows:
L(x) = k(x − T)2
17-15 Average cost per unit, based on the Taguchi loss function, is:
17-16 Total prevention cost = equipment maintenance = $1,154; total appraisal cost =
17-17 Correct answer is “a” (an increase in conformance costs resulted in a higher-
quality product, and therefore a decrease in nonconformance costs).
17-18 Customer Response Time (CRT) = elapsed time between when a customer
places an order (September 1, 2016) and when the customer receives the
17-5
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Chapter 17 - The Management and Control of Quality
(September 15, 2016). In this case, receipt time = 15 days.
Manufacturing lead time (cycle time) is the elapsed time between when
Manufacturing Department receives an order (September 15, 2016) and when
actual manufacturing is completed (November 15, 2016). In this case,
manufacturing lead time is 62 days.
Manufacturing lead time (62 days) can be broken down into wait time and
processing (manufacturing) time, as follows:
Delivery time = time lapse between when an order is finished (November 15,
2016) and when the order is received by the customer (December 1, 2016).
Here, delivery time = 17 days.
17-19 Total customer response time (CRT) = order receipt time + order wait time +
17-20 Manufacturing cycle efficiency (MCE) is defined as the ratio of value-added
17-21 Manufacturing cycle efficiency = ratio of actual processing (manufacturing) time
to total cycle time (processing time + moving time + storage time + inspection
17-22 (B)
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Chapter 17 - The Management and Control of Quality
17-23 (A)
Refer to text Exhibit 17.1. Normally, when product quality increases there
would be an expected decrease (not increase) in the sales return rate, with an
associated reduction in warranty and field-service costs. As well, investments in
17-24 (D)
Refer to text Exhibit 17.2. The framework reflected in Exhibit 17.2 shows Total
Perceived Quality as being the gap (or difference) between the actual
17-25 (D)
As indicated in text Exhibit 17.4 (Goalpost Conformance), one way to set
17-26 (A)
As indicated in text Exhibit 17.5 (Robust Quality Approach), one way to set
quality-performance standards is as at the targeted performance level (targeted
17-27 (D)
Refer to text Exhibit 17.7. Taguchi loss functions can be used in conjunction
with absolute conformance standards. These functions depict the cost of quality
as a nonlinear function: the loss (quality cost) increases at an increasing rate as
the actual performance level departs from the quality standard (targeted
17-7
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17-28 (A)
Conceptually, the total COQ can be categorized into conformance costs (i.e.,
appraisal costs and prevention costs) and nonconformance costs (i.e., internal
17-29 (C)
17-30 (B)
Refer to text Exhibit 17.8: Lost contribution due to increased demands is an
internal failure cost. Constrained resources spent on defective units increase
17-31 (A)
17-32 (B)
As noted in text Exhibit 14.14, CRT is defined as the total time-lapse between
17-33 (D)
17-34 (D)
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Chapter 17 - The Management and Control of Quality
corrective action (i.e., improve business processes), after poor quality has been
17-35 (B)
been detected.
17-36 (A)
EXERCISES
17-37 Ethics (45 Minutes)
1. An examination of the IMA’s Statement of Ethical Professional Practice
(www.imanet.org; note—requires log-in name and password) suggests that Maria
Sanchez likely violated the following standards of ethical conduct when she asked
Mary Stein to suppress pertinent information.
Competence—Maria Sanchez, controller, has a responsibility to:
vice-president of manufacturing. Thus, the reported financial information with the
omission lacks relevance and reliability for decision-making. Management does not
have a clear solution to overcome the component failure.
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Chapter 17 - The Management and Control of Quality
Integrity—Sanchez has a responsibility to:
responsibility to protect the overall interests and goal attainment of the company by
encouraging further study of the problem, informing her superiors of this matter,
and working with others to find solutions.
recommendations.
Disclose deficiencies in information, in accordance with organization policy and/or
applicable law.
17-10
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