Cost Accounting: A Managerial Emphasis, 16e, Global Edition (Horngren)

Cha pter1 9 Ba lanc e

dSc ore card:Qua litya ndTi me

1
9.1 Obj
ect
ive19
.1

1)Whi chofthef oll

owi ngist rueofISO 9 000?
A)Itisaqual i
tyma na geme nts yst
em compr i
si
ngdi ffe r
entproces
simproveme nts
uchassixsi
gmaand
l
e a
nmanuf act
uring.
B)Itismanda toryforal ll
ist
e dc ompanie si
nUSt ogetISO c
erti
fie d.
C)Ithe l
pscompa ni
esmoni tor,docume nt,andc e
rti
fythee l
ementsofthei
rproducti
onproces
sesthatle
ad
toqua l
it
y.
D)Itisadi sc
ipli
ned,da t
a-driven,ands tati
sti
calapproachtoimprovethequali
tyofproduc
tsorservic
es
byidentifyi
nga ndr emovi ngt hecausesofde fect
s.
Ans wer:C
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ect
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2)Whichofthefol
lowingbes
tde scr
ibesconfor mancequalit
y?
A)iti
sthefir sts
tepofaqualit
yma nageme ntsyst
em suchasI SO 9000
B)i
tistheperf
ormanceofaproduc tors e
r vi
ceaccordi
ngt ode s
ignandpr oducts
peci
fica
tions
C)i
tismakingtheproductaccordi
ngt ode si
gn, e
ngineeri
ng,andma nufact
uri
ngspeci
fic
ations
D)itf
ocusesonhow aproductme etscustome rneedsandwa nt
s
Answer:B
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3)Thecostsofqua l
it
yar ethecost
sincurr
ed_ _______.
A)toenhancel ar
ges c
aleproducti
on
B)topreventtheproduc ti
onofalow quali
typr oduct
C)duetode fe
c ti
veandl ow qual
it
yproduc t
D)becauseofwar ranti
es,normalspoi
lage,abnormalspoi
lage
,ands
crap
Answer:B
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ect
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4)Whichoft hefol
lowingtypesofc
ost
sar
einc
urr
edi
npr
ecl
udi
ngt
hepr
oduc
tionofpr
oduc
tst
hatdonot
conf
ormt os pecifications
?
A)preventionc ost
s
B)appraisalcosts
C)int
ernalf ail
urecost
s
D)externalfail
urecosts
Answe r
:A
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ff: 2
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ect
ive
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5)Whichofthef
ollowingdescri
besappra
isalcos
ts?
A)the
ya rei
ncurr
edt opre
venttheproducti
onofpr oductst
ha tdonotconformtospec
ificat
ions
B)t
heya r
eincur
redtode t
ectwhichoftheindivi
dualunitsofproduct
sdono tc
onf
ormt os
pecifica
tions
C)the
ya r
eincur
redonde fect
iveproduct
sbe f
oretheyareshippedtocustomers
D)theyarei
ncurr
edonde fect
iveproduct
sa f
tertheyhavebeens hi
ppedtoc ust
omers
Answer:B
1
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6)Spoil
age, re
wor k,s
crap,
andmac
hiner
epai
rsar
eal
lexa
mpl
esof__
___
___.
A)preventionc ost
s
B)appraisalcosts
C)int
ernalf ai
lurecost
s
D)externalfail
urecosts
Answe r
:C
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ff: 1
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ect
ive
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yti
calt
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7)Proc essengineeringisane
xampl
eof__
_____
_.
A)pre ventionc ost
s
B)appr aisalcosts
C)inter nalfai
lurecosts
D)exte rnalfail
urecosts
Answe r:A
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ff: 2
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ect
ive
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8)Rewor kisane xampleof_

___
____.
A)preventionc ost
s
B)appraisalcosts
C)int
ernalf ai
lurecos
ts
D)externalfail
urecost
s
Answe r
:C
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ff: 2
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ect
ive
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9)Warrantyr epaircos
tisa
nex
ampl
eofwhi
choft
hef
oll
owi
ng?
A)preventionc ost
s
B)appraisalcosts
C)int
ernalf ai
lurecost
s
D)externalfail
urecosts
Answe r
:D
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ff: 2
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ect
ive
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ica
tionofknowl
edge

10)Pr
oc essengineeri
ngisane
xampl
eof_
_____
__.
A)preventionc ost
s
B)appraisalcosts
C)int
ernalf ai
lurecost
s
D)externalfail
urecosts
Answe r
:A
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ff: 2
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ect
ive
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ica
tionofknowl
edge

11)Pr
oduc tt
est
ingisa
nexampl
eof__
_____
_.
A)preventi
oncost
s
B)apprais
alcos
ts
2
Copyright © 2018 Pearson Education, Ltd.
C)i
nternalf
ail
urec
osts
D)ext
ernalf
ail
urecos
ts
Ans
we r:B
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12)Mont icel
loCor pmanufacturesexpensi
vetabl
es.It
svarnishingde partmentisfull
yaut omatedand
requir
ess ubstanti
ali
nspecti
ont okeepthemac hi
nesoperat
ingpr operl
y.Ani mproperlyvarnis
hedtablei
s
veryexpens i
vet ocor
rect
.Inspecti
onhour sf
orthe5800tablesvar nis
hedi nSeptembert ot
aled1700hours
by1 0empl oyees.Ei
ghtquartsofvarnis
hwer eused,onaverage ,
forea c
ht abl
e.Thes t
andar damountof
varnis
hpe rta
bl ei
sninequarts.Thecostofins
pecti
onforSept embe rwa sequalt
ot hebudge t
eda mount
of$40,100.

The$40,100r epresentsa(n)_
______
_.
A)act
ivit
yc os tpool
B)possi
blec os tal
locat
ionbase
C)int
ernalfai lur
ec ost
D)work-in-pr oces
sc ontr
ol
Answer:A
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3
Copyright © 2018 Pearson Education, Ltd.
13)Mont icel
loCor pmanufacturesexpensi
vetabl
es.It
svarnishingde partmentisfull
yaut omatedand
requir
ess ubstanti
ali
nspecti
ont okeepthemac hi
nesoperat
ingpr operl
y.Ani mproperlyvarnis
hedtablei
s
veryexpens i
vet ocor
rect
.Inspecti
onhour sf
orthe5800tablesvar nis
hedi nSeptembert ot
aled2000hours
by1 2empl oyees.Ei
ghtquartsofvarnis
hwer eused,onaverage ,
forea c
ht abl
e.Thes t
andar damountof
varnis
hpe rta
bl ei
sninequarts.Thecostofins
pecti
onforSept embe rwa sequalt
ot hebudge t
eda mount
of$40,300.

Whatisthei
nspect
ioncos
tpe
runit?(
Roundthefinalans
we rt
othene
are
stc
ent
.)
A)$26.
19
B)$6.
95
C)$7.
95
D)$18.
99
Answer:B
Expl
anati
on:Rateperuni
t=$40,
300/5800uni
ts=$6.
95peruni
t
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14)Whichofthefol
lowingi
scons
ider
edac
ostofqual
it
y?
A)ext
ernalf
ailurec
osts
B)opport
unitycost
s
C)sunkcost
s
D)conti
ngentlia
bil
it
ies
Answer:A
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15)Whi chofthefol
lowi
ngi
sanoppor
tuni
tyc
ost
?
A)los
ts ales
B)cos
tofpr oducti
on
C)ma rginalcos
t
D)costofs al
es
Answe r:A
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ect
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tionofknowl
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16)Whichofthef oll
owi ngisafinanci
almeas
ureofqua
lit
y?
A)operat
ingincomegr owth
B)per
centageofhi ghlysati
sfiedcust
omers
C)numberofde fec t
iveunit
sshi
ppedtocust
omersasaper
cent
ageoft
otaluni
tss
hippe
d
D)int
erestcos
ts
Answer:A
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4
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17)Oneofthemos
tdi
rec
tfina
nci
alme
asur
esofqual
it
yist
hec
ost
sofqual
it
y.
Answer:TRUE
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ect
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18)I
SO9 00
0devel
opedb
yt heI
nte
rna
tionalOr
gani
zat
ionf
orSt
anda
rdi
zat
ioni
sas
etoffivei
nter
nat
iona
l
st
andar
dsforqual
it
ymanagement
.
Answer:TRUE
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ff: 2
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ect
ive
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yti
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19)Qua l
it
yisdefinedasthetota
lfeat
uresandchar
act
eri
sti
csofapr
oductoras
ervi
cemadeorper
for
med
accordi
ngtospe
cificat
ionst
os at
isf
ycustomersa
tthet
imeofpurcha
seandduri
nguse.
Ans wer:TRUE
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ect
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20)Confor
manc equal
it
yist
hepe
rfor
manc
eofapr
oduc
tors
ervi
cer
elat
ivet
oit
sde
signandpr
oduc
t
speci
fic a
tions
.
Answe r
:TRUE
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ff: 1
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ect
ive
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yti
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21)I
nt hebanki
ngi ndustr
y,de
posit
ingacus
tomer
'sc
he c
kintothewr
ongbanka
ccounti
sane
xampl
eof
qual
ityofdesi
gnf a
ilure
.
Answe r:FALSE
Expl
ana ti
on:Thisisanexampleofconf
ormanc
equal
ityfai
lur
e.
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ect
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22)Cost
sofqualit
y(COQ)repor
tsus
uall
ycons
ideroppor
tunit
yc os
ts.
Answe r
:F ALSE
Explanat
ion:Cost
sofqual
it
y(COQ)report
sus
uallydonotconsi
deroppor
tuni
tyc
ost
s.
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ect
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23)ISO9000a r
es t
andardsdesignedtoencourageorgani
zati
onstodevelopenvi
ronment
almanagement
syst
emstor educeenvi
ronme ntalcost
s.
Answe r
:F ALSE
Explanat
ion:ISO 1400
0ar est
andar dsdes
ignedt oenc
ourageor
ganizat
ionstodevel
openvi
ronmenta
l
manageme ntsyst
emst oreduceenvironmenta
lc ost
s.
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24)CostsofQuali
ty(COQ)areclas
sifie dintofourc
ate
gori
es:
preventi
oncost
s,appr
a i
salcos
ts,
opportunit
ycost
s,andsal
escost
s.
Answe r:FALSE
Explanati
on:CostsofQual
it
y(COQ)ar ec l
assi
fie dint
ofourcat
egori
es:pr
eve
ntioncost
s,apprai
salc
ost
s,
int
ernalfai
lur
ecosts
,andext
ernalfai
lur
ec ost
s.
Di
ff:
2

5
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25)Appr ais
alcostsar
ecostsi
ncurr
edtoprec
ludet
heproduct
ionofpr
oductst
hatdonotconf
ormto
spec
ific at
ions.
Answe r:FALSE
Explanati
on:Pr event
ioncost
sarecos
tsi
ncurre
dtopr
ecludet
heproduct
ionofproduc
tst
hatdonot
conf
or mt ospeci
fic ati
ons.
Di
ff: 2
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ect
ive
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ng

26)Ext
ernalf
ail
urec
ost
sar
ecos
tsi
ncur
redonde
fec
tivepr
oduc
tsaf
tert
heyha
vebee
nshi
ppedt
o
cust
omers.
Answer:TRUE
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ff: 2
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ect
ive
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yti
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ng

27)Wheneval
uati
ngalter
nat
ive
stoi
mpr
ovequa
lit
y,bot
hther
ele
vantbenefit
saswe
lla
sther
ele
vantc
ost
s
shoul
dbeconsi
dered.
Answer:TRUE
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ff: 1
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ect
ive
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yti
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ng

28)Preventi
oncos
tsi
ncludeinspect
ionandproductt
esti
ng.
Answe r:FALSE
Explanati
on:Apprai
salcos
tsincl
udeinspec
tionandproductt
est
ing.
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ff: 2
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ect
ive
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ica
tionofknowl
edge

29)War
rant
ycos
tsi
sanexa
mpl
eofe
xte
rna
lfa
ilur
ecos
ts.
Answer
:TRUE
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ect
ive
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ica
tionofknowl
edge

6
Copyright © 2018 Pearson Education, Ltd.
30)WhatareI
SO 9000andISO 14000?
Answer:ISO9000,
de ve
lopedbyt heInt
erna t
ionalOrgani
zati
onforStandardi
zat
ion,isasetoffive
i
nter
nati
onals
tandardsforqual
itymanage me ntadoptedbymor et
han85c ountr
ies.Thestandar
dshel
p
companie
smonitor
,document,andc ert
if
yt hee l
ementsofthei
rproducti
onprocessestha
tleadtoqua
lit
y.

ISO1400 0,als
ode ve l
opedbyt heInternati
onalOrgani
zat i
onf orStandardi
zat
ion,ar
es tandardsdes
igned
toencour a
geor ganizati
onstodevelop( 1)envi
ronmentalma nagementsyst
emst oreduc eenvi
ronmental
cost
sa nd( 2)envir
onment alaudit
ingandpe rf
ormance-
e valuationsyst
emstor e
viewa ndmoni tort
heir
progresstowa rdtheirenvi
ronme ntalgoals.
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31)Thetwoba sicaspectsofqua lit

yar equalit
yofdesignandc onformancequali
ty.
De fineandgi vean
exampleofeach.
Answe r
:Qual i
tyofde s
ignmeas ureshow closel
ythecharact
eris
ticsofproduct
sorservic
esme e
tt he
needsandwa ntsofc ustome r
s.Fore xampl e
,customersofphotocopyingmac hi
neswantcopie
rstha t
combinecopying,faxing,scanning,ande lect
ronicpri
nti
ng.Ifthephot oc
opymac hi
nesfai
ltomee tthes
e
cust
ome rneeds,sale
swi l
lfal
l.

Conformancequal
ityref
erstot
heperf
ormanc
eofaproductorser
vic
eaccor
dingt
odesi
gnandpr
oduct
speci
fic a
tions
.Forexample,i
faphot
ocopymac
hinecons
tantl
yhaspaperj
amsorbre
aksdown,
itf
ail
sto
sat
isf
yconformancequali
ty.
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ff: 1
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ect
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yti
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7
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3
2)Pl
yCor pmanuf
actur
esdoor
s.Classi
fyeachofthefol
lowingqual
it
ycos
tsaspr
eve
nti
onc
ost
s,
a
ppra
isalc
ost
s,i
nte
rnalf
ail
urec
osts
, orext
ernalf
ail
urecost
s.

a. Ret
e s
tingofr eworkedpr oduc t
s
b. Downt imeduet oqua li
typr oblems
c. Analysisoft hec auseofde f
ectsinproduc t
ion
d.De preciationoft estequipment
e. Warrant yr epair
s
f. Lostsalesar is
ingf r
om ar eputati
onforpoorquality
g. Qualityc i
rc l
es
h. Reworkdi r ectma nufactur i
nglabora ndoverhead
i. Netcos tofs poil
age
j
. Techni calsuppor tpr ovidedt osupplier
s
k. Auditsoft hee ffe ct
ivenes softhequali
tys ys
tem
l
. Plantut ili
tiesinthei nspe ct
ionar e
a
m.Ree nteringda t
abec auseofke ypunc herrors

_
_____
__ Pr
event
ionc
ost
s

_
_____
__ Appr
ais
alc
ost
s

_
_____
__ I
nter
nalf
ail
urec
ost
s

___
___
__ Ext
ernalf
ail
urecos
ts
Answer
:
g,j Pre
venti
oncost
s

d,l
,k Appr
ais
alc
ost
s

a
,b,
c,h,
i,m I
nter
nalf
ail
urec
ost
s

e
,f, Ext
ernalf
ail
urec
ost
s
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ff: 3
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8
Copyright © 2018 Pearson Education, Ltd.
33)DawnandKi mjustboughtabe dandbr ea
kfas
tinnataveryatt
rac
tivepr
ice.
Thebusi
nesshadbeen
doingpoor
ly.
Befor
etheyr eopenedtheinnforbusi
ness
,theya
tte
ndedas eminaronope
rati
ngahigh
quali
tybus
iness
.Now thattheyarereadytoopentheinn,t
heyneedsomeadviceonquali
tycos
tsand
management.

Required:
Identi
fyfourcate
goriesofqual i
tycosts.Inaddit
ion,i
denti
fyt
hre
eit
emst
hatwoul
dbec
las
sifiedi
nea
ch
ofthecategori
es.
Ans wer:Prevent
ion: Hi ringempl oyeeswithgoodrefer
enc
es
Trai
ningofowne rsandempl oyee
s
Goods ecurit
y
Goodr es
e rvat
ions yst
em
Purchasi
ngqua l
it
yf urni
ture

Appr
ais
al: Veri
fyinga ccurac
yofr es
erva t
ionandre
gis
trat
ionpr
oce
dures
Ins
pe c
tingr ooms,faci
li
ti
es,buildi
ngandgroundsre
gul
arl
y
Observingac ti
vit
iesofempl oyees
Tes
tingf urnit
ureandfixt ures
Tas
tetestingfood

I
nte
rnalf
ail
ure: Recl
e ani
ngr oomsandfaci
li
ti
es
Rest
oc ki
ngr oomswithli
nens,gl
ass
es,
etc
.
Out-of-s
tocksuppl
ies
Rei
ns pecti
on
Fai
lur et
obillonatimel
ybasis

Ext
ernalf
ail
ure: Res
pondingtocomplaintsaboutr
oomsandf ood
Res
pondingtocomplaintsaboutr
eser
va t
ions
Emerge
ncycleaningofroomswhennotr e
adyont i
me
Cust
omerrefundsbecauseofunsat
isf
actorycondit
ions
Opport
unit
yc ostofl
ostrevenuer
esult
ingfrom unhappyc
ust
omer
s
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ff: 3
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34)Wi lson'sLanguageSc hoolmanuf acturesCDsandDVDst oteachEngl ishasaSec ondLa ngua ge.

Wilsonha sjustpre pare daCos tofQual it
yRe port,andt hestaffhasnot icedadec li
neinpr event i
onc os
ts
asaper centa geoft otalsalesove rathree-yearpe ri
od. Wha tchangesmi ghtWi l
sonexpectt os eein
appra i
salcos tsasaper centageofs al
es, i
nternalf ail
urec os
tsasape rce ntageofs ales
,ande xte rnalfail
ure
cost
sa sape rcentageofs al
esgi venthistrend?
Answe r:Mos tli
kely ,
thedec lineinpr eventionc ostsasape r
centageofs ale
sove rathree-ye arpe r
iod
woul dre s
ul tinincr easedinternalande xternalfailurecostsasaper cent ageofs al
esdur i
ngt hiss ame
peri
od. Ther educedpr eventiona cti
vit
iesmi ghtr esul
tinmor ede fe
ctivepr oducts.
Appr aisa lcos tsasa
percentageofs al
esmi ghtalsor iseasmana ge menta tt
empt stocompe nsa t
ef orthehigherfa ilurer at
esby
i
nc r
e asi
ngi ns pect
iona ndappr ai
salcoststopr e
ve ntdefect
sf r
om r e
ac hingt hefinalc ustomer .
Di
ff: 3
Obj
ect
ive
:1
AACSB:Appl
ica
tionofknowl
edge

35)Aqual i
tyimpr ovementprogramisverycos
tlytoimpleme ntacr
ossalar
gecorpora
tion.Whydothey
doit?Expl ain.
Ans wer:Af ocusonqua li
tywithinanor
ganiza
t i
onwillhavethelongrunbenefitofr educi
ngcost
sand
i
nc r
e as
ingc ustome rs
atis
fact
ion.
Thec orporat
ionmus tconsiderf
ourkeycos
tofqua l
it
yar easwhe r
ecost
saremostlikel
ytoocc
ur:(1
)
preventionc os
ts-whi charis
ewhe ntheproductdoesnotme etthespeci
ficat
ions,(
2)apprai
salc
osts-
9
Copyright © 2018 Pearson Education, Ltd.
i
nc urr
e dbya ct
ionswhi chmus tbetakentodetectwhi c
hoft heindividualunitsofproductsdonot
conform withthespe c
ific ati
on(s)
,(3)int
ernalf
ailurecost
s-incurredonde f
ec t
iveproductsbefor
etheyare
shippedtoc ust
omer s,and(4)exte
rnalfail
urecosts-incurr
edondef e
c t
iveproduc t
saftert
heya reshi
pped
tocustome r
s.
Anyc ompanywhi c
hdoesnoti nvestinquali
tyimpr ovementb ycons t
antl
yr evie
wi ng,
revisi
ng,and
i
mpl eme nti
ngpr ocedurest
omai ntai
nf ocusonthef ourkeycostofqua lit
yareaswi l
lbealmos tcer
tai
nto
havelowe rprofit s,r
evenues,andmar ketshare
.
Di
ff: 3
Obj
ect
ive
:1
AACSB:Anal
yti
calt
hinki
ng

1
9.2 Obj
ect
ive1
9.2

1)Anex ampleofanonfinanc i
almeas ur
eforcust
ome rsa
tis
fac
tioni
s____
____.
A)numberofde f
ecti
veunitss
hippeda saperce
ntageoftot
alunit
sshi
pped
B)warrantyclai
msb ycustomers
C)li
abi
litycla
imsi nc
urredtothecompa ny
D)rewor kcos
tsduet oi
neffic ienc
y
Answer:A
Di
ff: 3
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

2)Whichofthef oll
owi ngisanexampleofanonfinanc
ialme
asur
eforc
ust
ome
rsa
tis
fac
tion?
A)aver
agemanuf acturi
ngt i
meforkeyproducts
B)cont
ributi
onma rginearnedonpopularproduct
s
C)ontimede li
veryr ates
D)timea ndeffor ts pentonmachinerepai
rs
Answer:C
Di
ff: 3
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

3)Whi c
hoft hefoll
owi ngisagraphofas
eri
esofs
ucc
ess
iveobs
erva
tionsofapar
tic
ula
rst
ep,
proc
edur
e,
oroperati
ont ake
na tregulari
nter
val
soft
ime?
A)controlchart
B)Paret
odi agram
C)cause-and-effec tdia
gram
D)fis hbonedi agrams
Answe r
:A
Di
ff: 2
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

4)Wha tisittha
tasta t
ist
icalqualitycontr
olchartdoes?
A)itshowsagr aphofas eriesofrandom eventsofaproces
s
B)i
tpl ot
se achobse
r vati
onr elat
ivetospecifie drange
sthatr
epr
esentt
heex
pec
teddi
str
ibut
ion
C)i
tpl otscontr
olobs er
va t
ionsove rvari
ousperiodsofti
me
D)itplotsonlythoseobs ervati
onsout s
idespecifie dl
imit
s
Answe r:B
Di
ff: 2
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

5)Aspercont
rolc
har
ts,r
andom vari
ati
onswoul
dmos
tli
kel
yoc
curwhen_
_____
__.
A)the
reisasuddeni
ncre
aseinproduct
ion
10
Copyright © 2018 Pearson Education, Ltd.
B)chancefluc t
uati
onsinthespeedofe
qui pmentcausedefec
tiveproduct
stobeproduced
C)defect
ivepr
oductsareproducedasar
e s
ultofasystemati
cproblem
D)chancefluc tua
tionsi
nt hes
pe e
dofthee qui
pmentc a
usede fe
cti
veproduct
stobeproduce
d
Answe r
:D
Di
ff: 2
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

6)Whi c
hoft hefoll
owingi
sac
har
twhi
chi
ndi
cat
esho
wfr
eque
ntl
yea
cht
ypeofde
fec
toc
cur
s?
A)controlc
hart
B)Paret
odiagra m
C)scatt
erdiagram
D)fis hbonedi agram
Answe r
:B
Di
ff: 2
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

7)Animpor tantdi
ffer encebe tweenfinanc ialme asuresofquali
tya ndnonfinanc i
almeasuresofqual
it
yis
tha
t________.
A)financ ialmeasuresofqual ityte ndt obeus efulindica
torsoffut
ur elong-t
erm per
forma nc
e,while
nonfina ncialmeasuresha vemor eofas hort
-ter
mf oc us
B)nonfinanc i
almeasur esofqua litytendt obeus efulindicat
orsoffuturelong-t
erm perf
ormance,whil
e
fina nci
alme asur
esofqua li
tyha vemor eofas hor t
-termfocus
C)nonfinanc i
alme asuresaregener al
lyt oosubject
ivetoha veanylong-term val
ue,whilefina nci
al
measuresaretooobjecti
vef ortaxationpur poses
D)nonfinanc i
almea suresaregener al
lyt oosubjecti
vetoha veanyshor t
-ter
m value,
whi lefina nc
ial
measuresaretooobjecti
vet oha veme dium- t
erm va l
ue
Answe r
:B
Di
ff: 3
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

11
Copyright © 2018 Pearson Education, Ltd.
8)Exampl esofnonfina nc
ialmeas
ure
sofqual
it
yinc
ludet
he__
___
___.
A)inspectionc ost
sincurred
B)numberofc us t
ome rcomplai
nts
C)designe ngine e
ringcosts
D)qualityt r
ainingc os
ts
Answe r:B
Di
ff: 2
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

9)Ca use-and-effectdiagr
amsa reusedinqual i
tyma nage
ments ystemst o____
____.
A)ide ntif
ya ndrespondtopotenti
alr
e as
onsoff ai
lur
e
B)indicatehow frequent
lyeac
ht ypeoffail
ureoccurs
C)di st
inguishrandom fr
om nonrandom variat
ionsina noperat
ingpr oc
es s
D)e valuatethetr
ade offsamongpr eventi
onc ost
s,apprai
salcost
s,andf ail
urecos
ts
Answe r:A
Di
ff: 2
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

10)Anillustr
ati
ont hatr
esemblest
hebones
truc
tur
eofafis
handi
dent
ifiespot
ent
ialr
eas
onswhya
probl
eme xi
stsi
sc al
led_______
_.
A)controlchart
B)Paret
odi agram
C)cause-and-effe ctdi
agram
D)time-seri
esgraphs
Answe r
:C
Di
ff: 2
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

11)Whenconsi
deri
nghow wel
lacompanyi
sdoingkeepingcust
omershappyandunde
rst
andi
ngt
hei
r
needsa
ndwa nts
,financi
alandnonfinanci
almeasure
sc anbeus
ed.
Answer:TRUE
Di
ff: 1
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

12)Ane xampleofafinanci
alme as
ureofcust
omersati
sf
act
ionwoul
dbet heperc
entageofdefe
cti
ve
product
spr oduce
dduri
ngaparti
cularmonth.
Answe r
:F ALSE
Explanat
ion:Produc
tst
hatdef
ect
iveisanexampleofnonfinanci
almeas
ur eofc
ustomersati
sf
acti
on.
Di
ff: 2
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

13)Anon-
ti
mede
live
ryr
atei
scons
ider
edanonfinanc
ialmeas
ureofc
ust
ome
rsa
tis
fac
tion.
Answer
:TRUE
Di
ff: 2
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

14)Acontr
olchar
tide
nti
fiespotenti
alcaus
esoff
ail
uresordefe
cts
.
Answer:FALSE
Expl
anati
on:Ac a
useandeffectcharti
denti
fiespote
ntialc
ausesoff
ail
ure
sorde
fec
ts.
Di
ff: 2
Obj
ect
ive
:2
12
Copyright © 2018 Pearson Education, Ltd.
AACSB:Anal
yti
calt
hinki
ng

15)Whenusingacont
rolcha
rt,
theobservati
onsout
sidet
heuppe
randl
owe
rcont
roll
imi
tsa
reor
dinar
il
y
r
egardedasnonr
andom andwor t
hinves
tigati
ng.
Answer:TRUE
Di
ff: 2
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

16)Theimplic
ationofcont
roll
ingaproc
essa
taS
ixSi
gmal
eve
list
hatt
hepr
oces
spr
oduc
esonl
y3.
4
defect
spermill
ionproductsproduc
ed.
Ans wer:TRUE
Di
ff: 2
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

17)APa ret
odiagrami
susual
lyinabar-
char
tfor
mat,t
hatindic
ate
show f
requent
lye
acht
ypeofde
fec
t
occurs
,orderedfr
om t
hemostfr
equentt
othelea
stf
requent.
Ans wer:TRUE
Di
ff: 1
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

18)I
fSi
xS i
gma'
sgoali
stogetdef
ectr
atesdownto3.4de
fec
tspere
ve r
y100,
000uni
tspr
oduc
ed.
Answer
:F ALSE
Expl
anat
ion:Si
xSi
gma' sg
oalis3.
4defect
spermil
li
onproduct
sproduce
d.
Di
ff: 2
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

19)Perc
ent
ageofr
ewor
kedpr
oduc
tsi
sane
xampl
eofanonfinanc
ialmeas
ureofi
nter
nalbus
ine
ss-
proc
ess
quali
ty.
Answe r
:TRUE
Di
ff: 2
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

13
Copyright © 2018 Pearson Education, Ltd.
20)Discussthemet hodsusedtoident
ifyquali
typroble ms.
Answe r:
1. Ac ontrolchar
ti sagraphofaseri
esofsucces
siveobs ervat
ionsofapar t
icul
arst
ep,proce
dure,or
opera
tiontakenatr egulari
nte
rval
softime.Eachobs ervati
onisplottedrel
ati
vetospec
ifie drangestha
t
repr
esentthelimitswi t
hinwhichobser
vati
onsaree xpe ct
edtof al
l.Obse
rvati
onsthatf
allout
sidethe
cont
rollimitsareregardedasnonra
ndom a ndworthi nvesti
gati
ng.

2
. AParet
odiagram i
ndi
cateshow f
requent
lye
acht
ypeoff
ail
ure(
def
ect
)oc
cur
s.Obs
erva
tionsout
side
c
ont
roll
imi
tss
er veasi
nputsforPar
etodia
grams.

3. Ac ause-
and-e
ffe ctdia
gr am he
lpstoidentifypot
enti
alcausesoffa
ilure
sorde
fec
ts.
The
"ba
ckbone
"of
thedi
agr a
mr epr
esentst
hepr oble
m beingexami ned.
Thela r
ge"bones"coming
offt hebackbonerepres
entthemai ncat
egoriesofpotent
ialca
usesoffail
ure.
Di
ff: 2
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

21)Acorporati
onc anme asureitsquali
typerf
ormanc ebyus i
ngfinanc ialornonfinanc i
almeas uresof
qual
it
y.Discusstheme ri
tsofe achme t
hoda ndwhe t
hertheuseofonepr ecl
udestheuseoft heothe r
.
Answer:Financialmeasuresofqua li
tyarequantifiable.Thebusinessc
a ncal
culat
ethec ost
sofs ett
ingup
qual
it
yc ont
rolsystems,thecos t
sofnoncompl i
ancewi t
hqua l
ityi
nt er
msoft heint
ernalande xt
ernalc os
ts
(r
ework,warrantycost
s,etc.
),ande st
imatetherevenueslos
tasares ul
tofquali
typroblems .

Nonfinanc i
alme as
uresofqual
it
yareusefuli
ndic
ator
soff
utur
elong-r
unperf
ormanc
e.The
yar ehelpf
ul
i
nrevea
lingfutur
ene edsandpre
fere
ncesofcust
omersandi
nindic
ati
ngthes
pecificare
astha
tne e
d
i
mproveme nt
.

Theuseofonemeasur
edoesnotpre
cludet
heuseoft
heother
. Fi
nanc
ialmeas
urestendt
obeshor
tterm
i
nna t
ure(whati
shappeni
ngnow).Nonfinanc
ialmeas
urestendtobelongt
erm andar
eusef
ulinte
rmsof
es
timati
ngtr
ends.

Financ
ialper
formanceme asure
sar emorereadilyavail
abl
ethannonfinanci
almeasures
,butt
heyareno
mor ei
mpor t
anttotheoveral
lgoalsoftheorganiza
tion.Bycons
ider
ingnonfinanci
almea s
ure
s,t
he
organi
zati
onc a
nimpr oveoperat
ionalcont
rol.Superiorfinanci
alper
for
manceusuall
yfoll
owsfr
om
superi
ornonfina ncialperf
ormanc e
.
Di
ff: 2
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

14
Copyright © 2018 Pearson Education, Ltd.
22)Kome ri
caCor piscommitt
edtoitsqual
it
ypr ogram.Itwor kswithal
lareasoft
hecompanytoesta
bli
sh
soundqualityprogramswit
hinreasonabl
ebudge tguide
lines.For2018
,ithasbudget
ed$1,
000,
000for
prevent
ioncos t
sand$900,
000forapprai
salcost
s.Inte
rnalfai
lurehasabudge tof$
100perf
ail
edit
em,
whileexter
na lf
ail
urehasatot
albudgetof$600,
000 .

ProductTest
inghasproposedt omana gementachangeinthe2018budge tforanew methodoftest
ing
products
.Ifmanageme ntdecidestoimplementthenew method,$1.50pe
runi tofappr
aisalcos
tswillbe
sa
ve d,uptoalevelof150,
000t es
ts.Noaddit
ionalsa
vingsareexpectedpastthe150,
000level
.Thenew
me t
hodinvolves$95,
000intrainingcost
sand$65,000i
nyea r
lytes
tingsupplies
.

Traditi
onal
ly,
5% ofal
lcompl
etedite
msha vet
obere
wor ked.Exte
rnalf
ail
urecos
tsavera
ge$120perf
ail
ed
unit.Thecompany'
savera
geexter
nalfai
lur
esar
e1% ofunit
ssold.Thecompanycar
riesnoending
inventor
ies
.

Required:
a. Wha ti
st headjust
edbudgetforappr
ais
alc
osts
,ass
umingthenew me
thodi
simpl
ement
edand
800
,000unitsaretest
edduri
ngt hemanufac
tur
ingproc
essi
n2017?

b
. How muchdoint
ernalf
ail
urecos
tschange
,as
suming500,0
00unit
saretest
edunde
rthene
w me
thod
a
nditr
educ
esthea
mountofunac c
eptabl
eunit
sinthemanufact
uri
ngprocessby40
%?

c. Wha twouldbet hechangei

ntheext
ernalf
ail
urebudget,assumi
nge
xte
rna
lfai
lur
esar
ere
duc
edby
60% andt hesamef actsa
sinpar
t(b)
?
Answe r:
a.
CurrentBudget $9 00,000
Additions:Trai
ning $95,
000
Additions:Supplies 65,
000 160,000
Savi
ngs :150,
000×$1 .50 (225,000)
Adjustedbudge t $5 15,000

b.
Curr
entbudget$100×0.0
5×5 00,
000= $2,
500
,000
Sa
vingsrate ×0.40
Netsavings(
reduct
ioni
nint
ernalfai
lur
ecos
ts) $1,
000
,000

c.
Currentbudget$120×0.0
1×500,0
00= $6
00,000
Savi
ngsr ate ×0.60
Nets avings(
reduct
ioni
next
ernalf
ail
urec
ost
s) $360
,000

Di
ff: 3
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

15
Copyright © 2018 Pearson Education, Ltd.
23)Nor t
hernCor pisc oncernedaboutit
sdeclini
ngsal
es,es
pe c
ial
lythereducti
onint henumbe rof
custome rs.Fort
helas ttwoye ars
,it
sshirt
shavewoni ndust
rya wardsforhighquali
tyandt r
end-set
ting
styl
e s.Atthelat
estexe cuti
vemanage rs
'me e
ting,al
lwerebl
ami ngeachotherfort
hede cli
ne.Afte
rmuc h
discus s
ionandpr es
e nt i
ngsomef act
-findingi nf
ormati
on,itwasdeterminedthatsale
srela
tionshi
pswe r
e
thec auseofmos tofthepr oblems.

Required:
Wha tma ybesomeofthecausesandho wcanthecausesbedetect
edifproductqual
ityi
snotanissue?
Answe r:Thecause
sma ybethelackofcust
ome rs
atis
fact
ionwi t
hsal
esstaff( poorsal
ess
kill
s),
de l
iver
y
proble
ms( del
ayeddeli
ver
ies
),account
ingprobl
ems(poorbill
ingandc ol
lec
tionproce
dures
),orpoor
ret
urnsandallowancepol
ici
es.

Thecausesmaybedetect
edbyc omparingnonfina ncia
lme asuresofthec
ompanywi ththosefoundinthe
indus
try
.Thesemightinc
ludemeas ur
esoft henumberofincorre
ctshipmentsornotonti
me ;thenumber
ofcus
tomercomplai
ntsaboutcert
ainareas(bil
li
ng,
shipping,et
c.
);res
ponsetimetocust
ome rcomplai
nts
;
oraquesti
onnai
reaboutwhyforme rcustomersqui
tbuyingfrom thecompany.
Di
ff: 2
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

24)BabyCareProductshasjustcomplet
edave r
ys uccess
fulprogram ofi
mpr ovi
ngqua l
ityinit
s
manufactur
ingoperat
ions
. Thene xts
tepist
oimpr ovetheoperati
onsofitsadminis
tra
tivefunct
ions
,
s
tarti
ngwi t
htheaccounti
ngi nformat
ionsys
tem. Asthema nageroftheaccounti
ngope ra
tions
,youare
r
eque s
tedtobegi
naqual i
tyimpr ovementprogr
am.

Requi red:
Wha ta resomepos sibil
it
iesoffindi ngouta boutthec ur r
ents t
atusofqua l
ityintheaccountings ys
tem?
Ans wer :Thema na germightbeginbyi de nti
fyi
ng" cus t
omer "needs.The nthemana germi ghtuseoneof
themet hodsofi de ntif
yingqualit
ypr oblems .St
atis
ticalqual i
tycontrolhelpstodisti
nguishbetwe en
random var ia
t i
ona ndnonr andom var i
ation.Ac ontrolc hartofobservati
onsus ual
lyaccompa niesthis
.
Anot hermet hodi st heuseofaPar e
todi agr a
m. Thisindi c
atesho wfrequentlyeachtypeoff ai
lureoccurs
.
Also,caus e
-and-effe ctdiagramshe l
pt oi dent
ifypot enti
alcausesoff a
ilure.A fishbonedi agrami sof
ten
usedhe r
etoi denti
f ymul ti
plecausesoffa i
lure.Qualityofde signcouldpot enti
all
ybethebi ggest
problem.
Di
ff: 2
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

25)Whatarecontrolchart
sandhow c aninf
erenc
esbedrawnfrom them?
Answer:Ac ontr
olc har
tisagraphofas eri
esofsuc
cess
iveobservati
onsofapa r
ticul
arst
ep,proc
edure,
or
oper
ati
ontakenatr egul
arint
ervalsofti
me .
Thesechar
tsmightindicatewhenapr oces
sisoutofcont
rol
bycompari
ngobs ervati
onstosta
tist
ica
llydete
rminedupperandl owerleve
lcontr
ollimit
s.

Eachobservat
ionisplott
edr ela
tivetospec
ifiedrangesthatr
epres
entstheli
mitswit
hinwhic
h
observa
tionsaree
xpec t
edt ofal
l.Observat
ionst
hatf
allouts
idethecont
rolli
mitsar
eregar
dedas
nonrandom andwor t
hi nvesti
gating.
Di
ff: 2
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

26)Disc
ussthemeansbywhi chacompanygoesaboute valuat
ingandi ns tal
li
ngane w quali
ty
i
mpr ovementpr
ogr a
m.
Answe r
:1.Themana gerswi l
lhaveprevious lyident i
fie dt hequal it
ypr oblemsbyus i
nganalyti
calt
ools
suchascontr
olchart
s, paretodia
grams ,andc ausea ndeffe ctdi agra ms .Thesetoolsanal
yzequali
ty
probl
emsandhe lpini mpr ovi
ngqualit
y.
2.Themangerswillthe nde ve
lopvari
ouss olutionopt ionsf orimpr oveme ntandpr oj
ecthow t
otalcos
ts
16
Copyright © 2018 Pearson Education, Ltd.
andt otalrevenuesforthecompa nywi l
lchangeunde reachalter
na ti
vesolution.
Onc eha vingdonet his
analysis,t
he ywillsel
ectandi mplementtheoptimals oluti
on.
3.Themana ger
swi l
lthenestabl
ishandi mpleme ntnonfina ncialme asuresofint
ernalbus inessproce
ss
qualityinor dertoassuretheongoingsuccessofthes oluti
ont ha
thasbee nputinplace.The seme asures
inc
ludeper cent
ageofdef ect
iveproducts
,percentageofr eworkedpr oduc t
s,andothers
.I mpr ovingthese
me asureswi lll
eadtogr eat
ercustomersati
sfact
ion,lowe rcost
sofqual it
y,andbe tt
erfinanc i
al
perf
or ma nce.
4.Themana ger
swi l
lthenestabl
ishandi mpleme ntme asuresoflearninga ndgrowthper spec t
ivefor
qualityimpr ovements.Theseincludesuchmea suresasempl oyeet urnover,employeetraining,andothers.
Thiswi llencourageac onti
nualfocusonqual i
tywi t
hi nthecorporation.
Di
ff: 3
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

1
9.3 Obj
ect
ive1
9.3

1)Managersi
dent i
fyt her el
evantcost
sandbe ne
fit sf
oreachsolutionb yfoc
usingon___
___
__.
A)theal
terna
tivesol uti
ont hatwil
lde r
ivemaxi mum cust
omers at
isf
ac t
ion
B)howtotalc
os t
sa ndt otalreve
nue swillc
ha ngeundereachal
ternativesol
ution
C)howtheempl oye esofac ompa nywoul dbea blet
oimplementac ha nge
D)howl ongi
twi lltakefort heimprovedpr ogra
mt obefull
yfunctional
Answer:B
Di
ff: 2
Obj
ect
ive
:3
AACSB:Anal
yti
calt
hinki
ng

17
Copyright © 2018 Pearson Education, Ltd.
2)PremierCorpe xpect
stospe
nd$8 00,500in2017inapprai
salcos
tsifi
tdoe snotchangeit
sinc
omi ng
materi
alsins
pecti
onme t
hod.I
fitdecidestoimplementane wrecei
vingmethod, i
twillsa
ve$60,
100in
fix edapprais
alc os
tsandvari
ablecostsof$0.5
0pe rmater
ial
sunitsrec
eived.Thenew me t
hodinvol
ves
$140,
600intrai
ningc os
tsandanadditional$150,
000inannualequi
pmentr ental
.

Int
ernalfai
lur
ecost
saverage$160perfail
edunitoffinishedgoods .Duri
ng2016,4% ofal
lcompl et
ed
i
temshadt obereworked.Exte
rnalfa
ilurecos
tsaver
age$430perfailedunit
.Thecompany'saverage
ext
ernalfai
lur
esare1% ofunit
ssold.Thecompanyc ar
rie
snoe ndinginvent
ori
es,
be c
ausealljobsareona
perorderbasi
sandajust-
in-t
imeinventoryorder
ingme t
hodisuse d.

Wha tistheneteffe ctonapprai

salcos
tsf
or20
17,
ass
umi
ngt
hene
wre
cei
vingme
thodi
simpl
eme
nte
dand
tha
t8 00,500materi
alunit
sarer
e c
eive
d?
A)$129 2incr
ease
B)$169,750decrease
C)$290 ,
600de c
rease
D)$400 3incr
ease
Answe r:B
Di
ff: 2
Obj
ect
ive
:3
AACSB:Appl
ica
tionofknowl
edge

3)PremierCorpe xpect
stospe
nd$8 00,900in2017inapprai
salcos
tsifitdoesnotchangeit
sincoming
materi
alsins
pecti
onme t
hod.I
fitdecidestoimplementanewr ecei
vingmethod, i
twillsa
ve$60 ,
500i
n
fix edapprais
alc os
tsandvari
ablecostsof$0.5
0pe runi
toffini shedproduct.Thenew methodinvol
ves
$140,
500intrai
ningc os
tsandanadditional$150,
300inannualequi
pmentr ental
.

Int
ernalfai
lur
ecost
saverage$250perfail
edunitoffinishedgoods .Duri
ng2016,6% ofal
lcompl et
ed
i
temshadt obereworked.Exte
rnalfa
ilurecos
tsaver
age$450perfailedunit
.Thecompany'saverage
ext
ernalfai
lur
esare2% ofunit
ssold.Thecompanyc ar
rie
snoe ndinginvent
ori
es,
be c
ausealljobsareona
perorderbasi
sandajust-
in-t
imeinventoryorder
ingme t
hodisuse d.

Wha twoul dbet hechangeintheexter

nalf
ail
urebudge
t,i
f600,
300unitsar
eus
eda
ndas
sumi
ngext
erna
l
fai
lur esarer educ edby1 2%.
A)$4 8,054i ncrease
B)$2 50 ,
150dec rease
C)$6 48 ,
324de c
re as
e
D)$3 04 ,
342de crease
Ans we r:C
Explana tion:
Externalf ail
urec osts[(
600,3
00)×0.02×$450 $5,402,
700
12% r educ t
ionf rom new me t
hod ×0.12
Sa vi
ngs $64
8,324
Di
ff: 3
Obj
ect
ive
:3
AACSB:Appl
ica
tionofknowl
edge

18
Copyright © 2018 Pearson Education, Ltd.
4)LaCrosseProduct
shasabudge tof$900,
000in2017forpr
e venti
oncosts
.Ifi
tde c
idestoautoma t
ea
port
ionofitspreve
ntionact
ivi
ties,itwil
lsave$81,
000invar
iablecost
s.Thene w methodwillrequire
$41,
000intrai
ningcostsa
nd$1 09,000inannualequipmentcosts.
Mana gementiswill
ingtoadjustthe
budgetforanamountupt othec ostofthenew equi
pment.Thebudge tedproducti
onleveli
s15 5,
000
unit
s.

Appraisalcostsfortheyea rarebudge t
eda t$600,000.Thene w preventionpr ocedureswillsa
veappr a
isa
l
cost
sof$5 0,200.Int
ernalfail
urecostsaverage$18pe rf
ailedunitoffini she dgoods.Thei nt
ernalf
ail
ure
rat
eise xpectedtobe2 % ofa l
lcompl et
edi t
ems. Thepr oposedc hangeswi l
lcuttheinter
na lf
ail
urerat
eby
one-t
hird. I
nternalf
a i
lureunitsarede s
troyed.Ex t
ernalfail
urecostsave rage$5 0perfai
ledunit.The
compa ny'saverageexter
na lfa
ilur
esa verage2% ofuni t
ss ol
d.Thene w propos alwil
lreduc et
hisrat
eby
45%.As sumea l
lunitsproduc edaresoldandt he rearenoe ndinginvent ories.

Wha tisthene tc hangei nthebudgetf

orpre
vent
ionc ostsi
fthepr
oceduresar
eaut
oma
tedi
n201
7?Wi
ll
manage me nta greewi t
hthechanges
?
A)$6 9,
000de c
rease ,yes
B)$6 9,
000inc rease,ye s
C)$1 50,
000i ncrease ,no
D)$8 1,0
00de creas
e ,yes
Answe r:B
Explanation:
Ne wc ost
s : Trai
ning $41,000
Newequipment 109,000 $150,00
0
Savings
Va ri
ablecosts (
81,000)

Ne
tinc
reas
einbudge
t $
69,
000
Di
ff: 3
Obj
ect
ive
:3
AACSB:Appl
ica
tionofknowl
edge

19
Copyright © 2018 Pearson Education, Ltd.
5)LaCrosseProduct
shasabudge tof$904,
000in2017forpr
e venti
oncosts
.Ifi
tde c
idestoautoma t
ea
port
ionofitspreve
ntionact
ivi
ties,itwil
lsave$80,
500invar
iablecost
s.Thene w methodwillrequire
$40,
900intrai
ningcostsa
nd$1 09,000inannualequipmentcosts.
Mana gementiswill
ingtoadjustthe
budgetforanamountupt othec ostofthenew equi
pment.Thebudge tedproducti
onleveli
s15 4,
000
unit
s.

Appraisalcostsfortheyea rarebudge t
eda t$610,000.Thene w preventionpr ocedureswillsa
veappr a
isa
l
cost
sof$5 0,100.Int
ernalfail
urecostsaverage$16pe rf
ailedunitoffini she dgoods.Thei nt
ernalf
ail
ure
rat
eise xpectedtobe4 % ofa l
lcompl et
edi t
ems. Thepr oposedc hangeswi l
lcuttheinter
na lf
ail
urerat
eby
one-t
hird. I
nternalf
a i
lureunitsarede s
troyed.Ex t
ernalfail
urecostsave rage$5 6perfai
ledunit.The
compa ny'saverageexter
na lfa
ilur
esa verage4% ofuni t
ss ol
d.Thene w propos alwil
lreduc et
hisrat
eby
45%.As sumea l
lunitsproduc edaresoldandt he rearenoe ndinginvent ories.

How muc hwi l

lappr ai
salcos
tsc
hangeass
umi ngt
henew pr
event
ionmethodsreduc
ema t
eri
alf
ail
uresby
40% i
ntheappr a i
salphase
?
A)$149,
900de crease
B)$69,
400increase
C)$50,
100de cr
e ase
D)$32,8
53de cr
e ase
Answer:C
Expl
anation:Impl ementi
ngthenew pr
event
ionproc
edur
eautomati
cal
lywillc
auseasa
vingsof$50,
100
i
nappr ai
salcosts.
Di
ff: 2
Obj
ect
ive
:3
AACSB:Appl
ica
tionofknowl
edge

20
Copyright © 2018 Pearson Education, Ltd.
AACSB:Anal
yti
calt
hinki
ng

15)Whenusingacont
rolchar
t,t
heobservati
onsout
sidet
heuppe
randl
owe
rcont
roll
imi
tsar
eor
dina
ril
y
r
egardedasnonr
andom andwor t
hinve
stigati
ng.
Answer:TRUE
Di
ff: 2
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

16)Theimplic
ationofcont
roll
ingaproc
essataSi
xSi
gmal
eveli
stha
tthepr
oces
spr
oduc
esonl
y3.
4
defect
spermill
ionproductsproduc
ed.
Ans wer:TRUE
Di
ff: 2
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

17)APar et
odiagram i
susual
lyinabar-
cha
rtf
ormat,t
hatindic
ateshow f
requent
lye
acht
ypeofde
fec
t
occurs
,ordere
df r
om themostfr
equentt
othel
eastf
requent.
Ans wer:TRUE
Di
ff: 1
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

18)I
fSi
xS i
gma'
sgoali
stoge tdefe
ctr
atesdownto3.4de
fec
tspere
ve r
y100,
000uni
tspr
oduc
ed.
Answer
:F ALSE
Expl
anat
ion:Si
xSi
gma' sgoalis3.
4defect
spermil
li
onproduct
sproduce
d.
Di
ff: 2
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng
19)Perc
ent
ageofr
ewor
kedpr
oduc
tsi
sane
xampl
eofanonfinanc
ialmea
sur
eofi
nter
nalbus
ine
ss-
proc
ess
quali
ty.
Answe r
:TRUE
Di
ff: 2
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

13
Copyright © 2018 Pearson Education, Ltd.
20)Discussthemet hodsusedtoidentif
yqualit
yproblems .
Answe r:
1. Ac ontrolchartisagraphofaseriesofsucc
essi
veobs ervat
ionsofapar ti
cularst
ep,procedure,or
opera
tiontakena tregulari
nte
rval
soft i
me .Eac
hobs ervat
ionisplotte
dr ela
tivetospec
ifie dr angestha
t
repr
esentthelimitswi t
hinwhichobservati
onsareexpectedtof a
ll.
Obs e
r vat
ionsthatf
alloutsi
det he
cont
rollimitsareregardedasnonrandom andwor t
hi nvesti
gati
ng.

2
. AParet
odiagramindi
cateshow f
requent
lyeac
htypeoff
ail
ure(
def
ect
)oc
cur
s.Obs
erva
tionsout
side
c
ont
roll
imi
tss
e rveasi
nputsforPar
etodia
grams.

3. Ac ause-
and-e
ffe ctdia
gr am hel
pstoidenti
fypotenti
alcausesoffailure
sorde
fec
ts.
The
"bac
kbone
"of
thedi
agr am r
epr
esentst
hepr oble
m beingexamined.Thelarge"bone s
"c oming
offt hebackbonerepres
entthemai ncat
egorie
sofpot e
ntialc
aus esoffail
ure.
Di
ff: 2
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

21)Acorporati
onc anme asureitsquali
typerf
ormanc ebyus ingfinancialornonfinanc i
almeas uresof
qual
it
y.Discussthemer i
tsofe achme t
hodandwhe t
hertheus eofoneprecl
udestheuseoft heothe r
.
Answer:Financialmeasuresofqual i
tyarequantifia ble
.Thebus i
nessc
anc al
culat
ethec ost
sofs ett
ingup
qual
it
yc ont
rolsystems,thecos t
sofnoncompl i
ancewi thqualit
yinter
msoft heint
ernalande xt
ernalc os
ts
(r
ework,warrantycost
s,etc.
),ande st
imatetherevenueslostasaresul
tofquali
typroblems .

Nonfina nci
almeas
uresofqual
it
ya reusefuli
ndic
ator
soff
utur
elong-r
unperf
ormanc
e.The
ya rehelpf
ul
i
nreveal
ingfutur
eneedsandpre
ferencesofcust
omersandi
nindic
ati
ngthes
pecificare
astha
tne e
d
i
mproveme nt
.

Theuseofonemeasur
edoesnotpre
cludet
heuseoft
heother
. Fi
nanc
ialmeas
urest
endt
obeshor
tterm
i
nna t
ure(whati
shappeni
ngnow).Nonfinanc
ialmeas
urestendtobelongt
ermandar
eusef
ulinter
msof
es
timati
ngtr
ends.

Financ
ialper
formancemeas ure
sa remorereadilyavail
abl
ethannonfinanci
almeasures
,butt
heyareno
mor ei
mpor t
anttotheoveral
lgoalsoftheorganiza
tion.Bycons
ider
ingnonfinanci
almeasure
s,t
he
organi
zati
onc ani
mpr oveoperat
ionalcont
rol.Superiorfinanci
alper
for
manceusuall
yfoll
owsfr
om
superi
ornonfinanc ialper
formanc e
.
Di
ff: 2
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng
 14
Copyright © 2018 Pearson Education, Ltd.

2
2)Komer
icaCor
pisc
ommi
tt
edt
oit
squal
it
ypr
ogr
am.
Itwor
kswi
thal
lar
easoft
hec
ompanyt
oes
tabl
ish
soundqua l
ityprogramswit
hinreasonabl
ebudge tguidel
ines.For201
8,i
thasbudget
ed$1,
000,
000for
prevent
ioncos t
sand$900,
000forapprai
salc
os t
s.Int
ernalfai
lurehasabudge
tof$100pe
rfail
edit
em,
whileexter
na lf
ail
urehasatot
albudgetof$600,
000 .

ProductTest
inghasproposedt omana gementac hangeinthe2018budg etforanew methodoftest
ing
products
.Ifmanageme ntdecidestoimpl e
me ntt
hene w method,$1.50perunitofappr
aisalcos
tswillbe
sa
ve d,uptoalevelof150,
000t es
ts.Noa ddit
ionalsa
vingsareexpectedpastthe150,
000level
.Thenew
me t
hodinvolves$95,
000intrainingcost
sand$6 5,000i
nyearlytes
tingsupplies
.

Traditi
onal
ly,
5% ofal
lcompl
etedit
emsha vet
obere
wor ked.Exte
rnalf
ail
urecos
tsavera
ge$120perf
ail
ed
unit.Thecompany'
savera
geexte
rnalf
ail
uresar
e1% ofunit
ssold.Thecompanycar
riesnoending
inventor
ies
.

Required:
a. Wha ti
st headj
ustedbudge
tfora
ppra
isalc
osts
,ass
umingthenew met
hodi
simpl
ement
edand
800,
000unitsarete
ste
ddur i
ngthemanuf
actur
ingproc
essi
n2017?

b
. How muchdoint
ernalf
ail
urecost
schange
,as
suming500,000unit
saretest
edunde
rthene
w met
hod
a
nditr
educ
estheamountofunacc
e pt
abl
eunit
sinthemanufactur
ingprocessby40
%?

c. Wha twouldbet hec ha

ngei
ntheext
ernalf
ail
urebudget,assumi
nge
xte
rna
lfai
lur
esar
ere
duc
edby
60% andt hesamef actsasi
npar
t(b)
?
Answe r:
a.
CurrentBudget $9 00,000
Additions:Trai
ning $95,
000
Additions:Supplie
s 65,
000 160,000
Savi
ngs :150,
000×$1. 50 (225,000)
Adjustedbudge t $5 15,000

b.
Curr
entbudge
t$100×0.05×500,
000= $2
,500
,000
Sa
vingsra
te ×0.4
0
Netsavi
ngs(
reduct
ionini
nter
nalfa
ilur
ecos
ts) $1
,000
,000

c.
Currentbudge
t$120×0.01×500,000= $600,
000
Savi
ngsr a
te ×0.60
Nets avi
ngs(
reduct
ionine
xternalfai
lur
ecos
ts) $360,
000

Di
ff: 3
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

15
Copyright © 2018 Pearson Education, Ltd.
23)Nor t
hernCor pisconcernedaboutit
sdecl
ini
ngs al
es,es
pe c
ial
lythereducti
onint henumberof
cust
ome rs.Fort
helasttwoye ars
,it
sshirt
shavewoni ndust
rya wardsforhighquali
tyandt r
end-set
ting
styl
es.Atthelat
estexecuti
vemanage rs
'meeti
ng,allwerebl
ami ngeachotherfort
hede cli
ne.Afte
rmuc h
discussi
onandpr es
ent i
ngsomef act
-findinginformati
on,itwasdeterminedthatsale
srela
tionshi
pswe r
e
thec a
useofmos toftheproblems.

Required:
Wha tma ybesomeoft hecausesandho wcanthecause
sbedetect
e difproductqual
ityisnotanissue?
Answe r:Thecausesma ybethelackofcust
ome rs
ati
sfa
cti
onwi t
hs al
esstaff( poorsaless
kill
s),
de l
ive
ry
proble
ms( del
ayedde l
iver
ies
),account
ingprobl
ems(poorbil
li
nga ndc ol
lec
tionprocedures
),orpoor
ret
urnsa ndal
lowa nc
epolici
es.

Thecausesmaybede t
ect
edbyc omparingnonfinancia
lmeas uresofthec
ompanywi ththosefoundinthe
indus
try
.Thesemightinc
ludeme asur
esofthenumberofincorre
ctshipmentsornotonti
me ;thenumber
ofcus
tomercomplai
ntsaboutcert
ainareas(
bil
li
ng,
shipping,et
c.
);res
ponsetimetocust
ome rcomplai
nts
;
oraquesti
onnai
reaboutwhyformerc ust
omersqui
tbuyingfrom thecompany.
Di
ff: 2
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

2
4)BabyCar
ePr
oduc
tsha
sjus
tcompl
etedave
rys
ucc
ess
fulpr
ogr
am ofi
mpr
ovi
ngqual
it
yini
ts
manufact
uringoper
ati
ons
.Thene xts
tepist
oimprovet
heopera
tionsofit
sadmini
str
ati
vefunct
ions
,
s
tar
tingwiththeacc
ounti
nginf
orma t
ionsys
tem.Asthemanageroftheacc
ount
ingoperat
ions
,youare
r
equeste
dt obegi
naquali
tyi
mpr ovementprogr
am.

Re quired:
Wha tar esomepos sibil
it
iesoffindi ngoutaboutt hec urrents t
atusofqualityintheaccountings ys
tem?
Ans wer :Themana germightbeginbyi de ntif
ying"c ustome r"needs.The nthemana germi ghtuseoneof
themet hodsofi dentif
yingqualit
ypr oblems .
Stati
sticalqualitycontrolhelpstodisti
nguishbetwe en
random va ria
t i
onandnonr andom var i
ation.Ac ontrolchartofobs ervati
onsus ual
lya c
compani esthis
.
Anot hermet hodist heuseofaPar et
odi agr am.Thisi ndicatesho wfrequentlyeachtypeoff ai
lureoccurs
.
Also,caus e
-and-effe ctdiagra
mshe l
pt oi denti
fypot entialcausesoff a
ilure.A fishbonedi agram isof
ten
usedhe r
etoi dent
ifymul ti
plecausesoffailure.Qual it
yofde signcouldpot enti
all
ybet hebiggest
problem.
Di
ff: 2
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

25)Whatarecontrolchart
sandho wc aninf
erencesbedrawnfrom them?
Answer:Ac ontr
olc har
tisagraphofas eri
esofs uc
cess
iveobservat
ionsofapart
icul
arst
ep,proc
e dur
e,or
oper
ati
ontakena tregul
arint
ervalsofti
me .
The s
ec har
tsmightindicat
ewhe naproces
sisoutofcontr
ol
bycompari
ngobs ervati
onstosta
tist
ical
lydete
rmi nedupperandl o
werl e
velcont
roll
imit
s.

Eachobserva
tionisplott
edr ela
tivetospec
ifiedrangesthatr
epres
entstheli
mitswit
hinwhic
h
obser
vati
onsar ee
xpec t
edt ofal
l.Observa
tionst
hatf
allouts
idethecont
rolli
mitsar
eregar
dedas
nonrandom andwor t
hi nvest
igating.
Di
ff: 2
Obj
ect
ive
:2
AACSB:Appl
ica
tionofknowl
edge

26)Disc
usst hemeansbywhi chacompanygoe saboute valuat
ingandi ns tal
li
ngane w quali
ty
i
mpr ovementprogr a
m.
Answe r
:1. Thema na gerswi l
lhaveprevious lyident i
fie dt hequa lit
ypr oblemsbyus i
ngana l
yti
calt
ools
suchascontrolchart
s, paretodia
grams ,andc auseande ffe ctdi agrams .Thesetoolsanal
yzequali
ty
probl
emsa ndhe lpini mpr ovi
ngqualit
y.
2.Thema ngerswillthe nde ve
lopvari
ouss olutionopt ionsf orimpr oveme ntandpr oj
ecthow t
otalcos
ts
16
Copyright © 2018 Pearson Education, Ltd.
andt otalrevenuesf orthecompanywi l
lchangeunde re achalter
na ti
vesolution.
Onc ehavingdonet his
analysis,t
he ywi llsel
ectandi mplementtheoptimals oluti
on.
3.Thema na ger
swi l
lthenestabl
ishandi mplementnonfinanc ialme asuresofint
ernalbusinessproces
s
qua l
ityinor dertoas suretheongoingsuccessofthesol uti
ont ha
thasbee nputinplace.Theseme asures
inc
ludepe rcentageofde fect
iveproducts
,percentageofr eworkedpr oduc t
s,andothers
.Impr ovingthese
me asureswi lll
eadt ogr eat
ercustomersati
sfact
ion,lowerc ost
sofqual it
y,andbet t
erfinanc i
al
performanc e.
4.Thema na ger
swi l
lthenestabl
ishandi mplementme asuresoflearninga ndgrowthper s
pec t
ivefor
qua l
ityimpr oveme nts.Theseincludesuchmeas uresa semployeet urnover,employeetra
ining,andothers.
Thiswi llencour ageac onti
nualfocusonqual i
tywi t
hint hecorporation.
Di
ff: 3
Obj
ect
ive
:2
AACSB:Anal
yti
calt
hinki
ng

1
9.3 Obj
ect
ive1
9.3

1)Managersi
dent i
fytherelevantc
os t
sa ndbe nefitsf
oreachs oluti
onb yfoc
usingon___
___
__.
A)theal
terna
tivesoluti
onthatwi l
lderivemaxi mum cust
ome rs a
tis
fact
ion
B)how t
otalc
os t
sandt ota
lre ve
nueswi llc
ha ngeundereachalternat
ivesol
ution
C)howtheempl oyeesofac ompanywoul dbeabl et
oimpleme ntac hange
D)how longi
twi llt
akeforthei mprovedpr ogram t
obefull
yf uncti
onal
Answer:B
Di
ff: 2
Obj
ect
ive
:3
AACSB:Anal
yti
calt
hinki
ng
 17
Copyright © 2018 Pearson Education, Ltd.
2)PremierCorpexpect
stospend$800,500in2017inapprai
salcost
sifitdoesnotc hangeit
sinc
omi ng
ma t
eri
alsins
pecti
onmethod.I
fitdecidestoimplementane wrecei
vingme thod,itwillsa
ve$60,
100in
fix edapprais
alcos
tsandvaria
blecostsof$0.
50pe rmater
ial
sunitsrecei
ved.Thene w methodinvol
ves
$140,
600intrai
ningcos
tsandanadditional$150,
000inannualequipme ntrent
al.

Int
ernalfa
ilur
ecost
saverage$160pe rfail
edunitoffinishedgoods .Duri
ng2016,4% ofallcompl et
ed
i
temshadt obereworked.Ext
e r
na lfa
ilurecos
tsaver
age$430perfaile
duni t
.Thecompa ny'
sa verage
ext
ernalfai
lur
esare1% ofunit
ss old.Thecompanyc ar
rie
snoe ndinginvent
ori
es,be
caus ealljobsareona
perorderbasi
sandajust-
in-t
imei nventoryorder
ingmethodisuse d.

Wha tisthene teffectonapprai

salcos
tsf
or20
17,
ass
umi
ngt
hene
wre
cei
vingmet
hodi
simpl
eme
ntedand
tha
t8 00,500ma t
eri
alunit
sarer
e c
eived?
A)$1292i nc
reas
e
B)$169,750de cr
ease
C)$290,6 00decr
ease
D)$4003i ncr
eas
e
Answe r:B
Di
ff: 2
Obj
ect
ive
:3
AACSB:Appl
ica
tionofknowl
edge

3)PremierCorpexpect
stospend$800,900in2017inapprai
salcost
sifitdoesnotc hangeit
sincoming
ma t
eri
alsins
pecti
onmethod.I
fitdecidestoimplementanewr ecei
vingme t
hod,itwillsa
ve$60,500i
n
fix edapprais
alcos
tsandvaria
blecostsof$0.
50pe runi
toffini shedpr oduct
.Thene w methodinvol
ves
$140,
500intrai
ningcos
tsandanadditional$150,
300inannualequipme ntrent
al.

Int
ernalfa
ilur
ecost
saverage$250pe rfail
edunitoffinishedgoods .Duri
ng2016,6% ofallcompl et
ed
i
temshadt obereworked.Ext
e r
na lfa
ilurecos
tsaver
age$450perfaile
duni t
.Thecompa ny'
sa verage
ext
ernalfai
lur
esare2% ofunit
ss old.Thecompanyc ar
rie
snoe ndinginvent
ori
es,be
caus ealljobsareona
perorderbasi
sandajust-
in-t
imei nventoryorder
ingmethodisuse d.

Wha twoul dbet hechangeintheexter

nalf
ail
urebudge
t,i
f600,300unitsar
eus
edandas
sumi
nge
xter
nal
fai
lur esarer educ edby12%.
A)$4 8,054i ncrease
B)$250 ,
150de crease
C)$6 48,324de c
re as
e
D)$ 304,342de crease
Ans we r:C
Explana tion:
Externalf ail
urec osts[(
600,
300)×0.02×$450 $5,402,
700
12% r educ t
ionf rom new method ×0 .
12
Sa vi
ngs $648,324
Di
ff: 3
Obj
ect
ive
:3
AACSB:Appl
ica
tionofknowl
edge

18
Copyright © 2018 Pearson Education, Ltd.
4)LaCrosseProduct
shasabudge tof$900,
000i
n2 017forpreventi
oncosts
.Ifi
tdecidestoautomatea
port
ionofitspreve
ntionacti
vit
ies,itwil
lsave$81,
000invariablec
ost
s.Thene w methodwillrequi
r e
$41,
000intrai
ningcostsand$109,000inannualequipmentcos t
s.Managementiswill
ingtoadjustthe
budgetforanamountupt ot
hec ostofthenew equi
pme nt
.Thebudge tedproducti
onleveli
s1 55,
000
unit
s.

Appraisalcos t
sfortheye ararebudge t
eda t$600,
0 00.
Thene w pre
ventionpr ocedureswi l
lsa
vea pprais
al
cost
sof$50, 200.Int
ernalfail
ur ecostsaverage$18pe rfailedunitoffini she dgoods.Thei nt
ernalf
ailure
rat
eise xpectedtobe2% ofa llcompl et
edi t
ems .
Thepr oposedc ha
ngeswi l
lcuttheint e
r nalf
ail
urerateby
one-t
hird. I
nternalf
ailureuni tsarede st
royed.Externalfail
urecostsaverage$50pe rfailedunit.The
compa ny'saverageexter
na lfailur
esa verage2% ofunitss ol
d.Thene w propos alwil
lr educ et
hisrat
eb y
45%.As sumeal lunitsproduc e daresolda ndtherea r
enoe ndinginventories.
Wha tist henetc hangei nthebudgetf
orpre
vent
ionc ostsi
fthepr
oceduresar
eaut
omat
edi
n2017?Wi
ll
manage me ntagreewi t
hthechanges
?
A)$6 9,
00 0de c
rea s
e ,yes
B)$69,000i ncrease,ye s
C)$1 50,
0 00increase ,no
D)$ 81,000de creas
e ,yes
Answe r
:B
Explana ti
on:
Ne wc osts: Trai
ning $
41, 000
Newequipment 109,000 $150,
000
Savings
Var i
abl ecos
ts (
81,0
00)

Ne
tinc
reas
einbudge
t $69
,000
Di
ff: 3
Obj
ect
ive
:3
AACSB:Appl
ica
tionofknowl
edge

19
Copyright © 2018 Pearson Education, Ltd.
5)LaCrosseProduct
shasabudge tof$904,
000i
n2 017forpreventi
oncosts
.Ifi
tdecidestoautomatea
port
ionofitspreve
ntionacti
vit
ies,itwil
lsave$80,
500invariablec
ost
s.Thene w methodwillrequi
r e
$40,
900intrai
ningcostsand$109,000inannualequipmentcos t
s.Managementiswill
ingtoadjustthe
budgetforanamountupt ot
hec ostofthenew equi
pme nt
.Thebudge tedproducti
onleveli
s1 54,
000
unit
s.

Appraisalcos t
sfortheye ararebudge t
eda t$610,
0 00.
Thene w pre
ventionpr ocedureswi l
lsa
vea pprais
al
cost
sof$50, 100.Int
ernalfail
ur ecostsaverage$16pe rfailedunitoffini she dgoods.Thei nt
ernalf
ailure
rat
eise xpectedtobe4% ofa llcompl et
edi t
ems .
Thepr oposedc ha
ngeswi l
lcuttheint e
r nalf
ail
urerateby
one-t
hird. I
nternalf
ailureuni tsarede st
royed.Externalfail
urecostsaverage$56pe rfailedunit.The
compa ny'saverageexter
na lfailur
esa verage4% ofunitss ol
d.Thene w propos alwil
lr educ et
hisrat
eb y
45%.As sumeal lunitsproduc e daresolda ndtherea r
enoe ndinginventories.

How muc hwillappr ai

salcos
tsc
hangeass
umi ngt
henew pr
event
ionmethodsreduc
emateri
alf
ail
uresby
40% int heappr aisalphase
?
A)$1 49,
9 00decr ease
B)$69,400i ncr
e ase
C)$5 0,
10 0decre ase
D)$32, 853decre ase
Answe r
:C
Explana ti
on:Impl ementi
ngthenew pr
event
ionproc
edur
eautomati
cal
lywillc
auseasa
vingsof$50,
100
i
nappr aisalc
ost s.
Di
ff: 2
Obj
ect
ive
:3
AACSB:Appl
ica
tionofknowl
edge
 20
Copyright © 2018 Pearson Education, Ltd.
6)LaCrosseProduct
shasabudge tof$907,
000i
n2 017forpreventi
oncosts
.Ifi
tdecidestoautomatea
port
ionofitspreve
ntionacti
vit
ies,itwil
lsave$80,
700invariablec
ost
s.Thene w methodwillrequi
r e
$40,
200intrai
ningcostsand$102,000inannualequipmentcos t
s.Managementiswill
ingtoadjustthe
budgetforanamountupt ot
hec ostofthenew equi
pme nt
.Thebudge tedproducti
onleveli
s1 55,
000
unit
s.

Appraisalcos t
sfortheye ararebudge t
eda t$600,
0 00.
Thene w pre
ventionpr ocedureswi l
lsa
vea pprais
al
cost
sof$50, 000.Int
ernalfail
ur ecostsaverage$15pe rfailedunitoffini she dgoods.Thei nt
ernalf
ailure
rat
eise xpectedtobe2% ofa llcompl et
edi t
ems .
Thepr oposedc ha
ngeswi l
lcuttheint e
r nalf
ail
urerateby
one-t
hird. I
nternalf
ailureuni tsarede st
royed.Externalfail
urecostsaverage$54pe rfailedunit.The
compa ny'saverageexter
na lfailur
esa verage2% ofunitss ol
d.Thene w propos alwil
lr educ et
hisrat
eb y
45%.As sumeal lunitsproduc e daresolda ndtherea r
enoe ndinginventories.

How muc hwillint

erna
lfail
urec
ostsc hangeiftheint
ernalproduc
tfai
lur
esar
ereduc
edby1
/3wi
tht
he
new pr ocedures?(Donotroundint
er me dia
tecalc
ulat
ions.)
A)$1 5,
50 0de c
rease
B)$ 19,582dec rease
C)$4 98,000decrease
D)$ 755, 000de cr
ease
Ans we r:A
Expl ana ti
on:Fai l
edunits (
1 55,000×0 .
02) 3100
Cos tperuni t ×$15
Total $46,
500
Savingsr ate ×1/3
Savings $15,
500
Di
ff: 2
Obj
ect
ive
:3
AACSB:Appl
ica
tionofknowl
edge
 21
Copyright © 2018 Pearson Education, Ltd.

7)LaCrosseProduct
shasabudge tof$910,
000i
n2 017forpreventi
oncosts
.Ifi
tdecidestoautomatea
port
ionofitspreve
ntionacti
vit
ies,itwil
lsave$80,
800invariablec
ost
s.Thene w methodwillrequi
r e
$40,
500intrai
ningcostsand$103,000inannualequipmentcos t
s.Managementiswill
ingtoadjustthe
budgetforanamountupt ot
hec ostofthenew equi
pme nt
.Thebudge tedproducti
onleveli
s1 51,
000
unit
s.
Appraisalcos t
sfortheye ararebudge t
eda t$606,
0 00.
Thene w pre
ventionpr ocedureswi l
lsa
vea pprais
al
cost
sof$50, 400.Int
ernalfail
ur ecostsaverage$15pe rfailedunitoffini she dgoods.Thei nt
ernalf
ailure
rat
eise xpectedtobe2% ofa llcompl et
edi t
ems .
Thepr oposedc ha
ngeswi l
lcuttheint e
r nalf
ail
urerateby
one-t
hird. I
nternalf
ailureuni tsarede st
royed.Externalfail
urecostsaverage$50pe rfailedunit.The
compa ny'saverageexter
na lfailur
esa verage2% ofunitss ol
d.Thene w propos alwil
lr educ et
hisrat
eb y
50%.As sumeal lunitsproduc e daresolda ndtherea r
enoe ndinginventories.

How muc hdoe xt ernalfai

lurecostschangei
fallchangesar
easa nt
icipate
dwi ththenew pr
eve
nti
on
procedur es?Ass umea llunit
sproduc edaresol
dandt herearenoendi nginvent
orie
s.
A)$7 5,
50 0de cr
ea se
B)$75,500i ncreas e
C)$1 51,
0 00de crease
D)Noneoft heseans wersiscorrect
.
Answe r
:A
Explana t
ion:Ext ernalfail
urecos t
s(151,
000×0.02×$50 )
= $151,000
Savi
ngsr ate ×0.50
Sa vings $
75,500
Di
ff: 3
Obj
ect
ive
:3
AACSB:Appl
ica
tionofknowl
edge

8)LaCrosseProduct
shasabudge tof$903,
000i
n2 017forpreventi
oncosts
.Ifi
tdecidestoautomatea
port
ionofitspreve
ntionacti
vit
ies,itwil
lsave$80,
200invariablec
ost
s.Thene w methodwillrequi
r e
$40,
800intrai
ningcostsand$100,000inannualequipmentcos t
s.Managementiswill
ingtoadjustthe
budgetforanamountupt ot
hec ostofthenew equi
pme nt
.Thebudge tedproducti
onleveli
s1 51,
000
unit
s.

Appraisalcos t
sfortheye ararebudge t
eda t$609,
0 00.
Thene w pre
ventionpr ocedureswi l
lsa
vea pprais
al
cost
sof$50, 400.Int
ernalfail
ur ecostsaverage$15pe rfailedunitoffini she dgoods.Thei nt
ernalf
ailure
rat
eise xpectedtobe3% ofa llcompl et
edi t
ems .
Thepr oposedc ha
ngeswi l
lcuttheint e
r nalf
ail
urerateby
one-t
hird. I
nternalf
ailureuni tsarede st
royed.Externalfail
urecostsaverage$58pe rfailedunit.The
compa ny'saverageexter
na lfailur
esa verage3% ofunitss ol
d.Thene w propos alwil
lr educ et
hisrat
eb y
50%.As sumeal lunitsproduc e daresolda ndtherea r
enoe ndinginventories.

22
Copyright © 2018 Pearson Education, Ltd.
Ma na geme nthasoffe r
edt oal
low thepreventi
onchangesifallc hangestakeplaceasanti
cipa
tedandt he
amount sne tt
eda rel e
s sthanthecostoftheequipment.Whati sthene ti
mpac tofal
lthechangescre
ated
bythepr eventivec hange s?(Note:number sshownas(negat
ives)r epres
entne ts
avingsandposit
ive
number sr epresentne tcost.
)
A)$1 40,800
B)$(2 2,
65 0)
C)$(143 ,820)
D)$ (131,370)
Ans we r:C
Explana tion:Tr ainingCos ts $40,
800
EquipmentCos ts 100,
000 140,80 0

S
avi
ngs
Prevention $(80,
200)
Appr ais
al (50,
400)
Int
e r
nalf ai
lur
ecost
s (22,
650)
Externalfai
lurec
osts (131,
370) (
284,
620)
NetSa vings $(
143,
820)
Di
ff: 3
Obj
ect
ive
:3
AACSB:Appl
ica
tionofknowl
edge

9)Cys
coCorphasabudgetof$1
,202,
000in2017f
orprevent
ioncos
ts.
Ifitdeci
dest
oautomateaport
ionof
i
tspre
vent
ionact
ivi
ti
es,
itwil
lsave$100,
000i
nvaria
blecost
s.Thenew methodwil
lre
quire$50,
000i
n
t
rai
ningc
ost
sand$149
,000inannualequi
pmentc
ost
s.Mana
geme ntiswi
lli
ngtoadjustt
hebudge
tforan
a
mountuptothec
ostofthenew equi
pment.
Thebudget
edproduct
ionle
velis205
,000unit
s.

Appr ai
salcos t
sfortheye ararebudge t
eda t$505,000
. Thenew pr event
ionpr ocedur
eswi l
lsaveapprais
al
cost
sof$50,6 00.Int
ernalfail
ur ecost
saverage$34pe rfail
eduni toffini s
he dgoods .Theint
ernalfai
lure
rat
eise xpectedtobe6% ofa llcomplet
edi t
ems .Thepr oposedc hangeswil lcutthei
nt e
rnalf
a i
lurer
ateby
one-half
.Internalfa
ilureunitsar edest
royed.Externalfai
lurecos t
saverage$5 8pe rf
aileduni
t.The
compa ny'saverageexternalfail
uresaverage2.7% ofunitssold.Thene w pr oposalwil
lreducethisra
teto
2%. Assumeal lunitsproduc edar esol
dandt herearenoe ndinginventories.

Wha ti
st henetc hangei nthebudgetofpr
eve
nti
onc
ost
sift
hepr
oce
dur
esar
eaut
omat
edi
n201
7?Wi
ll
manageme ntagr eewi t
hthechange
s?
A)$100,
0 00decre ase,yes
B)$99,
600dec reas e
,yes
C)$100,
0 00increase, no
D)$99,600incr
e ase,yes
Answe r
:D

23
Copyright © 2018 Pearson Education, Ltd.
Expl
anat
ion:Ne wcos
ts: Tra
i ning $50,600
Newe qui
pme nt 149,000 $199,600
Savi
ngs (
100,000)
Neti
ncreas
einbudget $99,600
Di
ff: 2
Obj
ect
ive
:3
AACSB:Appl
ica
tionofknowl
edge

10)Cysc
oCor phasabudgetof$1,207,000in2017forpre
ventioncost
s.I
fitdecidestoautomateaport
ion
ofit
spreventi
onact
ivi
ti
es,i
twillsave$10 6,
000invari
ablecosts
.Thenew me t
hodwi llre
quire$50
,200in
tr
aini
ngc os
tsand$143,
000inannua lequipmentcosts
.Mana gementiswil
li
ngt oadjustt
hebudgetforan
amountupt othec
ostofthenew equipment .Thebudgetedproduct
ionleveli
s201 ,
000units
.

Appr ai
salcos t
sfortheye ararebudge t
eda t$503,000
. Thenew pr event
ionpr ocedur
eswi l
lsaveapprais
al
cost
sof$50,6 00.Int
ernalfail
ur ecost
saverage$34pe rfail
eduni toffini s
he dgoods .Theint
ernalfai
lure
rat
eise xpectedtobe6% ofa llcomplet
edi t
ems .Thepr oposedc hangeswil lcutthei
nt e
rnalf
a i
lurer
ateby
one-half
.Internalfa
ilureunitsar edest
royed.Externalfai
lurecos t
saverage$5 8pe rf
aileduni
t.The
compa ny'saverageexternalfail
uresaverage2.5% ofunitssold.Thene w pr oposalwil
lreducethisra
teto
2%. Assumeal lunitsproduc edar esol
dandt herearenoe ndinginventories.

How muc hwi l

lappr ai
salcos
tsc hangeassumingthatt
henew pre
venti
onmet
hodsreduc
ema
ter
ial
fai
luresb y40% intheappraisalpha s
e?
A)$1 56,
200de creas
e
B)$307 ,
545de cr
ease
C)$5 0,
600i nc
rease
D)$ 50,600de c
rease
Ans we r
:D
Explana t
ion:Thene w preventionprocedureswil
lsaveappr
ais
alcos
tsof$
50,
600.
Di
ff: 2
Obj
ect
ive
:3
AACSB:Appl
ica
tionofknowl
edge
3
4)Ac meJanit
orServi
cehasal
waystakenpri
deinthefactt
ha ti
thadoneofthehighestcus
tomer
r
esponseti
me sinthehomecl
eani
ngs er
vic
eindust
ry.Howe ver,
ast hepr
oduct
smanuf ac
turedf
orthi
s
i
ndustryhavebecomemorecomplex
, t
hecompany'
scustome rresponset
imehasdecl
ined.

Requi
red:
Whydoyout hinktha
tr e
s pons
eti
mede cli
nedi fallothe
rqua l
it
yfactorshaveremainedthesame?
Answer:I
fqualit
yproduc ti
onwasoneoft heotherc ont
rolfa
ctors
,andt heproduc
tsbe camemore
compl
ex,i
tprobablyt
akesmor eti
met oins
pec tandve ri
fythequali
tyoft hefinishedpr oduc
ts.
Ther
efor
e,
t
oma i
ntai
nthes amelevelofqual
it
y,addit
ionaltimehadt obeputi ntotheproduc
tc ycl
e.
Di
ff: 2
Obj
ect
ive
:5
AACSB:Appl
ica
tionofknowl
edge

3
5)Venl
azCorpmakess
ma l
lmotorc
ycl
es.Themont hl
ydemandrangesfr
om 80to100motorc
yc l
es.The
a
vera
gedemandis92motor
cyc
les
.Theplantoper
ates300hour
samont h.Ea
chcycl
etake
sa pproximatel
y
1
.5hour
s.

Ifthec ompa nyaddsane wli

neofs cooters
,init
ialdemandwi l
lbe20permont h.Eachs coot
erwillt
ake1
hourt omake .
Tooffs e tapproachingproduc t
ioncapaci
ty,e
xpandingt
heas s
e mblylineispossi
ble
.This
wi l
ldec reas
ema nuf
act
ur i
ngt i
mef orallproductsby20%. However,
thi
swilli
nc r
easet hecost
sofcycl
es
from $4 00to$500ands cooter
sfrom $200to$ 240.Thechangewillal
socaus
einc r
easesinpr i
cesf
rom $70
0
to$ 750f orc
yclesandfrom $450to$5 00forscooter
s.

Requi
red:
a. Whati
sthea
ver
agewai
ti
ngt
imef
orc
ycl
esi
fthe
yar
etheonl
yit
em manuf
act
ure
d?

b. Wha taret
heav
era
gewai
ti
ngt
ime
sifbot
hcy
clesands
coot
ersar
epr
oduc
edandt
heas
sembl
yli
nei
s
notenl
arged?

c
. Wha tar
ethea
ver
agewai
ti
ngt
ime
sifbot
hcy
clesands
coot
ersar
epr
oduc
eda
ndt
heas
sembl
yli
nei
s
e
nlar
ged?

d. Whatisthee
xpe
cte
dmont
hlymar
ginwi
thouts
coot
ersi
fthec
ompanys
ell
sal
l92c
ycl
esi
t
manuf
acture
s?

e
. Whatar
etheexpe
ctedmonthlycont
ribut
ionmargi
nsifs
coot
ersa
remadewi t
ht hec
ur r
enta
ssembl
y
l
inea
ndwit
hthenewa s
sembl
yl i
ne?Assumea ve
rages
ale
sandthats
alese
qualproduct
ion.

f
. Wha
tac
tiondoyour
ecomme
nd?

41
Copyright © 2018 Pearson Education, Ltd.
Answer
:
a. Wai
tingt
ime=[
92×(
1.5
)2]/{
[2×[
300hr
.amont
h-(
92×1.
5)]
}=0
.639hour
s

b
. WT=(
92×(
1. 2)+(
5) 20×1
)/{
2×[
300-(
92×1.
5)-(
20×1
)]}=227
/28
4=0
.79
9hour
s

c
. WT=(
92×(
1. 2)+(
2) 20×(
0. 2)/{
8) 2×[
300-(
92×1.
2)-(
20×0.
8)]
}=145
.28/34
7.2=0.
418hour
s

d. Expe ctedmont hlymargi

nwi t
houts
coot
ers
:
Mot orc
yclesales(92×$700) $
64 ,
400
Ma nufact
ur i
ngc ost
s(92×$400) 36,
800
Expe c
tedma rgin $
27 ,
600

e. Wi t
houtc hangingassembl
yli
ne:
Mot orcyc l
es ales(
92×$7 00) $
64,
400
Scooters ales(20×$ 450) 9,
000
Tot alexpe ctedsales 73,
400

Ma nufactur
ingcos
ts:
Mot orcycl
es(92×$400) $
36,
800
Scooters(20×$200) 4,
000 40,
800
Expectedma rgi
n $
32,
600

Wi t
hne wa ss
e mblyline
:
Motorcyc l
es al
es(92×$7 50) $
69,
000
Sc
ooters ales(20×$ 500) 10,
000
Totalexpe cteds
ales 79,
000

Ma nufactur
ingcos
ts:
Mot orcycl
es(92×$500) $
46,
000
Scooters(20×$240) 4,
800 50,
800
Expectedma rgi
n $
28,
200

f. Unl
esstherear
ec ri
ti
calcust
ome rr
ela
tionproble
mswi thas
lowerr
e s
ponseti
me ,
thesc
ooter
sshoul
d
beadde
dwi thoutchangingtheass
emblyline.Theexpe
ctedmargi
nis$4,
400higherwit
houtt
henew
ass
emblyl
ine($32,
600-$2 8,
200)
.
Di
ff: 3
Obj
ect
ive
:3
AACSB:Appl
ica
tionofknowl
edge

42
Copyright © 2018 Pearson Education, Ltd.
1
9.6 Obj
ect
ive1
9.6

1)Whichofthefol
lowi ngreducesmanuf ac
turingcycl
etimesa
ndde l
ays
?
A)incr
easi
ngthecapa cit
yofabot tl
eneckresource
B)sel
li
ngofanex i
stingequipme nttosaveuponde pr
eci
ati
oncos
ts
C)i
ncreasi
ngthetimei ttakesf
ors e
tupsandpr ocessi
ng
D)outsour
cingt
hej obt oathir
dpar ty
Answer:A
Di
ff: 2
Obj
ect
ive
:6
AACSB:Appl
ica
tionofknowl
edge

2)I
nventoryc arryi
ngcostsequalthe______
__.
A)opportuni t
yc os
tsoftheinvestmentti
edupininvent
oryandt
hec
ostofmanufac
turi
ngofgoods
B)cos
tsofs torageonl
y
C)opportuni t
yc os
tsoftheinvestmentti
edupininvent
orya
ndther
ele
vantc
ostsofst
orage
D)his
toricalcostsandtherelevantcos
tsofst
ora
ge
Answer:C
Di
ff: 2
Obj
ect
ive
:6
AACSB:Anal
yti
calt
hinki
ng

3)Whichofthef ol
lowi
ngi
sas
tor
agec
ost
?
A)la
borc ost
B)materi
alshandli
ng
C)dire
ctma ter
ial
D)overheadcost
Answer:B
Di
ff: 2
Obj
ect
ive
:6
AACSB:Appl
ica
tionofknowl
edge

4)Whe nma nufacturi

ngc ycl
eincre
ases
,__
___
___.
A)sunkc os
tswi l
lde c
rease
B)opportunit
yc ostswilli
ncreas
e
C)opportunit
yc ostswilldecr
ease
D)inventor
yc arryi
ngc ost
swi l
lincr
eas
e
Answe r
:D
Di
ff: 2
Obj
ect
ive
:6
AACSB:Appl
ica
tionofknowl
edge

43
Copyright © 2018 Pearson Education, Ltd.
5)Longermanuf act
uringc yc
leti
me scanresul
tin__ _____
_.
A)lowerrevenuesandhi gherinventorycarryi
ngc osts
B)higheropportunit
yc ost
sandl ow pr ofitmar gins
C)loweroppor t
unitycostsandhi ghpr ofitmar gins
D)higherrevenuesandl owerinve ntor
yc a
rryi
ngc osts
Answe r
:A
Di
ff: 2
Obj
ect
ive
:6
AACSB:Appl
ica
tionofknowl
edge

6)Tra n-Nor thAme ricanI ndustriesInc .i

slookingatac hangeinit
smanuf ac
turi
ngpr oces
sthatwi l
lcause
manuf acturingc ycl
et imet oincre asefrom 250hour sto425hours.Theincr
easeinthemanuf actur
ingt i
me
willre sulti
nane s
tima tedlossinr e
ve nuesof$1 9,
000.Carryi
ngcostsarees
timat
eda t$2.
00pe rhoura nd
thecont rollere s
timatest hat44or de rsforraw ma t
eria
lsareexpect
edfortheyear
. Wha ti
sthee xpec
ted
changei nre venuesa sar esultoft heinc r
easeinmanuf acturi
ngcycleti
me?(Roundt hefina lanswe rtothe
neares twhol edoll
ar.)
A)$3 4,400
B)$3 7,400
C)$1 9,000
D)$3 00 0
Ans we r:A
Explana t
ion:( 425*2 .00*4 4)-((88 .
00*25 0)-19 ,
000)=$3 4,
400
Di
ff: 3
Obj
ect
ive
:6
AACSB:Anal
yti
calt
hinki
ng

44
Copyright © 2018 Pearson Education, Ltd.
7)Spe edyDr essManuf actur
ingha stwowor kstati
ons, cut
tinga ndfini s
hi ng .Thec utti
ngstationisl i
mited
byt hes peedofope r
ati
ngt hecuttingma chi
ne.Finishingisl i
mitedbyt hes pe edoft hewor kers.Finishing
nor mallywaitsforworkf rom cutt
ing.Eachde partme ntwor ksane ight-hourda y.Ifcutti
ngbe ginswor k
twohour sear
lierthanfini shinge achday,t
het wodepar t
me nt sgenerallyfini shtheirworka taboutthe
samet i
me .Notonlydoe sthi
se li
mi nat
ethebot t
leneck,buta ls
oi tincre
as esfini sheduni t
sproduc edeach
da yby21 0units.Allunitsproduce dcanbesoldev ent hought hec hangei nc reasesinventorystoc kby15 %
from 43 0unit
s.Thec ostofoperati
ngt hecutt
ingde pa rt
me nttwomor ehour se achda yis$1430. The
contributionmar gi
noft hefini she dproductsis$12eac h.Inventoryc arryingc ostsare$0.
50pe runitpe r
da y.

Wha ti
sthechangei
nt hedai
lycont
ribut
ionmar
gini
fthec
hangei
smade
?
A)$684
B)$703
C)$1058
D)$715
Answer:C
Expl
anation:
Unit
spe rhour=210/2=64 .5unit
sperday
Tot
alproducti
on=6 4.
5×10=64 5units

Tot
alcontributionmargin(210×$12) $25 20
Carryi
ngc ost(64.5uni
ts×$ 0.
50) (
32 .
25)
I
ncreasedcos t
s (1430)
Ne tchangei ncont
ributi
onma r
gin $1058
Di
ff: 3
Obj
ect
ive
:6
AACSB:Appl
ica
tionofknowl
edge

8)Ca ptainCar l
'sSeascapespr oducesse apicturesforsalethroughc atalogs.Thecompanyha st wo
wor kstat
ions,photopr oduc t
ionandf rami ng.Thephot oproduc t
ions t
a ti
onislimit
edbyt hes pee dof
oper at
ingthephot ode velopme ntma chine.Frami ngislimitedbyt hes peedoft heemployees.Fr aming
normal lywai t
sforwor kfr om phot opr oduction. Eac
hde part
mentwor ksane ight-
hourda y
.IfCa ptai
n
Carl'sSeascapesa ddsa ne arli
erha l
fshi f
tsot hatphotopr oduc t
ionbe ginswor kfourhoursear li
erthan
fra
mi nge achda y,thetwode part
me nt
sgene ral
lyfini shthe i
rwor ka taboutthesamet i
me .Notonl ydoes
thiseli
mi natethebot t
lenec k,butitals
oi ncr
ease sfini sheduni t
spr oduc edeachda yby220uni ts.Alluni
ts
produc edc anbes old.Thec ostofopera t
ingthephot opr oduc ti
onde pa rt
me ntfourmorehour se a
chda y
is$1250. Thecontr i
butionmar ginofthefini shedpr oduc t
sis$20ea ch.

Wha ti
sthetot
alproduc
tionperdayift
hechangei
smade?
A)55units
B)220unit
s
C)440units
D)660units
Answer:D
Expl
anati
on:Unitsperhour=220/4=55uni t
sperhour
Tot
alproducti
on=5 5×12=6 60unit
sperday
Di
ff: 1
Obj
ect
ive
:6
AACSB:Appl
ica
tionofknowl
edge

9)CaptainCarl'
sSeasc
apespr oduc
e sse apict
uresforsal
ethroughca
talogs.
Thecompanyha st wo
workstat
ions,photopr
oduc t
ionandf rami ng.Thephotoproducti
onstati
onisl
imit
edbyt hes peedof
operat
ingthephot odeve
lopme ntma chine.Framingisli
mitedbythespeedoftheemployees.Framing
normallywaitsforworkfrom phot
opr oducti
on.Eachde par
tmentworksane i
ght-
hourda y
.IfCa ptai
n
Carl
'sSeascapesaddsane ar
li
erhalfshi f
tsothatphotoproducti
onbeginsworkfourhoursear l
iert
han
45
Copyright © 2018 Pearson Education, Ltd.
fra
mi ngeachday,thetwode part
me nt
sgenerall
yfini shthei
rworkataboutthesameti
me.Notonlydoes
thisel
imina
tethebot t
lenec
k,butitals
oincre
ase sfinishe
duni t
sproducedeachdayby200uni
ts.
Al luni
ts
producedcanbes old.Thecostofoperat
ingthephotoproducti
ondepart
me ntfourmor
ehourse
achda y
i
s$1 310.
Thec ont
ributionmarginofthefini shedproductsi
s$20each.

Whatisthec
hangei
nthedai
lyc
ont
ribut
ionmar
gini
fthec
hangei
smade
?
A)$250
B)$269
0
C)$4000
D)$200
Answer:B
Di
ff: 3
Obj
ect
ive
:6
AACSB:Appl
ica
tionofknowl
edge

10)Themanufac
turingc ycl
eincl
udingrel
atedde l
aysc
anber
educ
edby___
___
__.
A)batc
hingsi
milarjobstogethe
rforproce
ssing
B)decr
easi
ngthecapa ci
tyofabottl
eneckresource
C)notset
ti
ngupfle xi
blemanufactur
ingsystems
D)incr
easi
ngthetimef orset
upsandpr oces
sing
Answer:A
Di
ff: 2
Obj
ect
ive
:6
AACSB:Anal
yti
calt
hinki
ng

11)Manufa
ctur
ingc
ycl
eti
mesaffe
ctbot
hre
venuesandc
ost
s.
Answer:TRUE
Di
ff: 1
Obj
ect
ive
:6
AACSB:Anal
yti
calt
hinki
ng

12)Longermanuf
act
uri
ngc
ycl
eti
mesi
ncr
eas
ethei
nvent
oryc
arr
yingc
ost
sanddec
rea
ser
eve
nue
s.
Answe r
:TRUE
Di
ff: 2
Obj
ect
ive
:6
AACSB:Appl
ica
tionofknowl
edge

13)Incr
easingthecapaci
tyofabott
lene
ckr
esourceincr
eas
esmanufac
tur
ingcycl
etime
sanddel
ays.
Answe r:FALSE
Explanati
on:Incre
asingthecapa
cit
yofabott
leneckres
ourcer
educ
esma nuf
act
uringc
ycl
eti
mesand
dela
ys.
Di
ff: 2
Obj
ect
ive
:6
AACSB:Appl
ica
tionofknowl
edge

14)Onewaytoi
ncr
eas
ecapac
ityi
stor
educ
ethet
imei
ttakesf
ors
etupsa
ndpr
oce
ssi
ng.
Answer:TRUE
Di
ff: 1
Obj
ect
ive
:6
AACSB:Anal
yti
calt
hinki
ng

15)Oneofthewaystoincr
eas
ecapac
ityist
oinves
tinne
w equi
pment,s
uchasflexi
blemanuf
act
uri
ng
syst
emsthatcanbeprogr
amme dtos
wi t
chquic
klyfr
om pr
oduci
ngoneproduc
ttopr
oduci
nganot
her
.
Answer:TRUE
Di
ff: 2
Obj
ect
ive
:6
AACSB:Anal
yti
calt
hinki
ng

46
Copyright © 2018 Pearson Education, Ltd.
16)Br i
x,Inc., preparesfr
oze nfoodf orfast-foodr es t
aur ants.Ithastwowor kstat
ions ,
c ookingand
assembly .Thec ookingstat
ionisl i
mi tedbyt hec ooki ngt imeoft hefood. As semblyi sl i
mi t
edbyt hes peed
ofthewor kers .Assemblynor mal l
ywa it
sonf oodf r
om c ooki ng.Becauset hede ma ndhasi ncreasedin
recentmont hst o2 ,
800doze nunits,ma nageme nti sc onsideringaddi nga not hercooki ngs t
ati
onore l
se
havingt hec ookss tartt
owor kearli
er .
Themont hl yc ostofope rati
ngt hec ookings tati
ononemor ehour
eachda yi s$2, 400.Thecostofaddi nga not herc ooki ngs tati
onwoul daddana verageof$ 10perhour .The
currentoper a ti
nghour stotaleighthour sada y,22da ysamont h.Thec ontributionmar ginofthefini s
hed
produc t
si sc urrently$8perdoze n. Inventor ycar ryi
ngc ostsaverage$2 .00pe rdoz enpermont h.
Ei t
he rthe
extrahourort hene wcooki ngstat
ionwoul dinc reasepr oduc tionby2 0doz enada y ,withal ong-run
increas
eof8 0doz enunitsinfini shedgoodsi nvent oryt o28 0dozen.

Requi
red:
a. Whati
sthet
otalpr
oduc
tionpermont
hift
hec
hangei
sma
de?

b. Wha
tistheinc
rea
sei
nt heexpe
cte
dmonthl
ypr
oduc
tcont
ribut
ionf
ore
achoft
hepos
sibl
echa
nge
s?
Ass
umelong-r
unproduc
tionequal
ssal
es.

47
Copyright © 2018 Pearson Education, Ltd.
Answe
r:
a. Tot
aldoz
enpermont
h=2
,800+(
22×2
0)=3,
240

b.
Currentpr
oduc tc
ontri
buti
onma
rgi
n(2,
800×
$8) $22
,400
Carryi
ngcosts(20
0×$2) (
400)
Cur r
entnetcontr
ibut
ion $22,
000

Mor ehour s:
Expe ct
edpr oductcont
ribut
ionma r
gin(
3,24
0×
$8) $25
,92
0
Carr yi
ngc ost
s(280×$2) $560
Increasedcosts 2,
400 (
2,960)
Expectedne tpr
oductcontri
but
ion $22,96
0

I
ncr
eas
e=$2
2,96
0-$22
,00
0= $9
60

Newc ooki
ngstation:
Expect
edproduc tcont
ributi
onma r
gin(
3,24
0×
$8) $25
,92
0
Carryi
ngcost
s(28 0×$2) $560
Inc
reasedc
osts($10×22×8) 1,
760 (
2,3
20)
Expect
ednetproduc tcontr
ibut
ion $23,
600

I
ncr
eas
e=$2
3,60
0-$22
,00
0= $1,
600
Di
ff: 3
Obj
ect
ive
:6
AACSB:Appl
ica
tionofknowl
edge

48
Copyright © 2018 Pearson Education, Ltd.
1
7)
Cooki
eswi
th
cas
hewand
Re
levanti
tems honey Pl
ainc
ooki
es Di
ffe
renc
e

Expe cted
revenue $850,
000 $72
5,00
0 $
125
,000
Expe cted
variablecost
s 54 8,
000 4
18,
000 (
130,
000)
Expe cted
inventory
carryingcost 32,000 22
,000 (
10,
000)
Expe ctedtot
al
costs 580,
000 44
0,00
0 (
140,
000)
Expe cted
profit s $270,
000 $2
85,
000 $(
15,
000)

Dul cetFoods ,Inc.

,hastheopt i
ontos elleitheroftheva r
iant
.Whichonei sabett
era l
ternat
ive?
Ans we r:Thee xpect
edrevenuei smor eby$ 125,
000forthecashew andhoneycookies,buttheincreas
ein
variablecos t
sandi nventorycarryi
ngc ostshasha mpe redtheexpectedprofitsofthec ompany .The
inventoryc arryingcost
si nc
reasesduet ol argeramountofma t
eri
alstobehandle
d. Thec ompanyhas
madeal esserpr ofitwi ththeintroduc ti
onoft hecashew andhone ycooki
es.Thus,itisbett
erto
manuf a
c t
urepl aincookieseventhought hec ompanye arnsmorerevenueswit
ht hene w vari
ant.
Di
ff: 3
Obj
ect
ive
:6
AACSB:Appl
ica
tionofknowl
edge

18)Manuf a
cturi
ngc ycl
et i
me saffe c
tbot hr e
venuesandc os t
s.Explain.
Answe r:Revenuesarea ffe ct
edbe caus ecustome r
sa r
ewi llingtopa yahigherpricef
orf as
terdeli
very.
On
t
hec ostsi
de,direc
tma t
erialscost
sa ndi nventorycarryi
ngc os tsaretheonlyrele
vantcostsofintr
oducing
avaria
tioninproduc tl
ine.Allothercos tsareuna ffectedandt hereforei
rre
levant.
Inventorycarryi
ngcost
s
equaltheopportunit
yc ost
soft heinvestme nttiedupi ninve ntoryandt here
levantcos
tsofs t
orage,s
uch
asspacerental
,spoil
age,deteri
orat
ion, andma te
rial
shandl ing.
Di
ff: 2
Obj
ect
ive
:6
AACSB:Anal
yti
calt
hinki
ng

49
Copyright © 2018 Pearson Education, Ltd.
1
9.7 Obj
ect
ive1
9.7

1)Whic hofthefol
lowingisa ninter
nal
-bus
ine
ss-proce
ssme
asur
etos
tudyt
heout
putdur
ingbot
tl
enec
k
si
tuat
ions?
A)ma nufact
uringcycl
ee ffic i
encyf
orkeyprocess
es
B)car
ryingcostofinventori
es
C)numberofe mpl
oye e
st r
ainedtomanagebottl
enecks
D)customer-re
sponsetime
Answe r:A
Di
ff: 2
Obj
ect
ive
:7
AACSB:Appl
ica
tionofknowl
edge

2)Whichoft hefol
lowingisal ea
rning-
and-growthme asur
etos
tudyt
heout
putdur
ingbot
tl
enec
k
si
tuat
ions?
A)ma nufac
turingcycl
ee ffic iencyf
orke yproces
ses
B)car
ryingcostofinventori
es
C)numberofe mploye estr
ainedtomanagebot t
lenecks
D)improvec ust
ome r
-responseti
medur ingbottl
enecks
Answe r
:C
Di
ff: 2
Obj
ect
ive
:7
AACSB:Appl
ica
tionofknowl
edge

3)Whichofthefol
lowingi snottruer egardi
ngbal a
nc e
ds core
car dme as
ures?
A)Bothfinanc i
alandnonfinanc ialmeas ureshelpma nagersmana geperf
ormancealongthet
ime
dimensi
on
B)Nonfinanc i
almeas ureshe l
pmana gersevaluat
egoalac hi
evementr egar
dingmanufactur
ingcyc
letime
C)thebalanc
edscorec
a rddoe snothelphi ghli
ghtli
nka ge
sac r
os sthefinanc ia
landnonfina nci
al
pers
pect
ivesoft
heba l
anc escorecar
d
D)reve
nueandc ostme asureshelpmana gerseval
uatethefinanc ialeffectsofi
ncr
easesanddecrea
sesi
n
nonfina nci
almeasures
Answer:C
Di
ff: 2
Obj
ect
ive
:7
AACSB:Appl
ica
tionofknowl
edge

4)Managerslookingtoreducedef
ect
iveunit
sproducedatbot
tleneckopera
tionswoul
dmos
tli
kel
ybe
monit
oringinter
nal-bus
iness
-proc
essmeasuresonthebal
anceds c
orecar
d.
Answer:TRUE
Di
ff: 1
Obj
ect
ive
:7
AACSB:Anal
yti
calt
hinki
ng

50
Copyright © 2018 Pearson Education, Ltd.
5)Nonfinanc ialme asuresareineffect
iveathel
pingmanagerseval
uatehow we l
ltheyhavedoneongoals
sucha si
mprovingma nuf
ac t
uringcyc
leti
me sandcust
omerresponseti
me s.
Answe r:FALSE
Explanati
on:Nonfinanc ialmea s
uress
uc hascus
tomermeasuresandinternal
-busine
ss-
proces
sme as
ures
hel
pmana ge
rsevaluatehow we llt
heyhavedoneong oal
ssuchasimprovingmanuf act
uri
ngc yc
let
imes
andc ust
omerrespons eti
me s.
Di
ff: 1
Obj
ect
ive
:7
AACSB:Anal
yti
calt
hinki
ng

6)Thel a s
ts t
epoft hefive -s
tepde c
isionmaki ngproc e
s sisimpleme ntingthede c
isi
on,e valuat
ing
performa nce,andl earni
ng.How c anabal anceds c
orecardpl ayar ol
ei nhe l
pingt oa s
suret hisfinals tep
willbes uccessful?
Ans we r: Usingthebal ance
ds corecarda ndtrackingc hangesint hetime -basedmea sure
sc anas sess
whe therornott hefina nc i
alperfor manc eoft hecompanyi smee ti
ngore xceedingthec ompany' sgoals.
Ifthegoa lsarenotbei ngme t,
t hendec isionsandpl ansc anbemodi fiedasr equir
edt ome ett hegoal
s.
Theba lanc edscorec
ar disusedt ot rackthefinanc i
al,customer,internalbus i
nesspr ocesses,and
l
e a
rni ngandgr owthmeas uresofthec ompany .
Sincethe r
ear ecause-and-effec tlinkagesa ndrelati
ons hi
psa mongma nyoft hevariousmeas ures
withint hefina nci
alandnonfina nc ialscorecar
dc ategories
,itisverybe nefic i
alforthema na gerstokeep
abreastoft heme as
uresandhow t heyar echangingove rt i
mes othatat ime l
yr esponsecanbemadet o
avertpr obl
emsass oona spos si
ble.
Di
ff: 3
Obj
ect
ive
:7
AACSB:Anal
yti
calt
hinki
ng

7)Amac hi neha sbe enidentifieda sabottl

eneckandt hes ourceoft heconstr
aintforamanuf ac t
uri
ng
compa nyt hathasmul ti
pleproduc t
sandmul ti
plemac hines.Disc
us swa ysthecompanyc anove rcomethe
bott
leneck.
Ans wer:
Thewa ysi nc l
ude :
a. El i
mi na t
ingi dletimea tthebot tl
eneckoper at
ion.Extras t
affinga tt
hebot tl
eneckwoul dbea
possibi
li
t y,par ti
cularlyifnume rousma nualtypetaskswe reinvolved.
b. Conc entrateonpr ocess
ingthos epar t
sorpr oductsthatincrea
s ethroughputc ontr
ibut
ion,no tpar
tsor
produc t
st hatr ema ininfini s
he dgoodsors parepartsinventori
es .
c. S hi
ftapar toft hepr oductspr oduceda tt
hebot tl
eneckmac hi
net oothermac hinesoroutsourcepart
ofthepr oduc tion.
d. Solicittheopi nionsofthef a
c torywor ker
sforideasast ohow t hede si
gnofthemanuf acturingproces
s
canbes impl ified.
e.I mpr ovet hequa l
it
yoft hepr oduc t
ionprocess.Poorqual i
tyise s
pec i
all
ycostl
ya tabottl
enec k
operati
on.
Di
ff: 3
Obj
ect
ive
:7
AACSB:Appl
ica
tionofknowl
edge

51
Copyright © 2018 Pearson Education, Ltd.