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The document discusses two cases involving analyzing quality performance and costs of quality measures. The first case involves an outdoor furniture company that wants to evaluate how well it has done in reducing quality costs over the past year. It provides quality cost data from the previous two years to categorize and calculate prevention, appraisal, internal failure, and external failure costs. The second case involves a mobile phone company that has received complaints and wants to evaluate whether quality and timeliness have improved based on defect, complaint, and cycle time data from the previous two years. It also discusses how to calculate manufacturing and customer response times.

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Rami RRK
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31 views

Tutorial Questions

The document discusses two cases involving analyzing quality performance and costs of quality measures. The first case involves an outdoor furniture company that wants to evaluate how well it has done in reducing quality costs over the past year. It provides quality cost data from the previous two years to categorize and calculate prevention, appraisal, internal failure, and external failure costs. The second case involves a mobile phone company that has received complaints and wants to evaluate whether quality and timeliness have improved based on defect, complaint, and cycle time data from the previous two years. It also discusses how to calculate manufacturing and customer response times.

Uploaded by

Rami RRK
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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16.1 The benefits from improving quality always exceed the costs.’ Do you agree? Explain.

16.15 ‘When evaluating a company’s performance on the time dimension, managers should
consider only financial measures.’ Do you agree with this statement? Explain your answer.

16.16 ✶✶ Analysis of costs of quality


Openair Ltd makes chairs for outside living spaces. The company has been working on improving quality
over the past year and wants to evaluate how well it has done on costs-of-quality (COQ) measures. Below
are costs of quality, and revenues, relating to the past two years:

2017 2018
Supplier evaluation $5 000 $5 500
Scrap $7 500 $5 900
Warranty repair costs $9 980 $7 960
Design engineering $4 475 $6 775
Inspection $3 500 $4 600
Rework $8 980 $5 800
Total revenue $500 000 $575 000

Required
1. Identify the cost-of-quality (COQ) category (prevention, appraisal, internal failure and external failure)
for each of these costs.
2. Prepare a COQ report by calculating and presenting the costs of quality for each category and the ratio
of each COQ category to revenues and total quality costs.
3. Present a brief report that evaluates how well the company has done based on its COQ measures.

16.20✶✶ Quality performance, non-financial measures of quality and time


Wandering Mobile Phones Ltd (WMPL) has developed a mobile phone that can be used anywhere in the
world; even in countries like Japan that have a relatively unique mobile phone system. WMPL has been
receiving complaints about the phone. For the past two years, WMPL has been test-marketing the phones
and gathering non-financial information related to actual and perceived aspects of the phone’s quality. It
expects that given the lack of competition in this market, increasing the quality of the phone will result
in higher sales and thereby higher profits.
Quality data for 2017 and 2018 include the following (in thousands of phones):

2017 2018
Mobile phones produced and shipped 2500 10 000
Number of defective units shipped 125 400
Number of customer complaints 190 250
Units reworked before shipping 150 700
Production cycle time 13 days 14 days
Average customer-response time 28 days 26 days
Required
1. For each of 2017 and 2018, calculate:
a. percentage of defective units shipped
b. customer complaints as a percentage of units shipped
c. percentage of units reworked during production
d. production cycle time as a percentage of total time from order to delivery.
2. Referring to the information calculated in requirement 1, explain whether RMPL’s quality and
timeliness
have improved.
3. Explain how to calculate manufacturing cycle time and customer-response time, and why
manufacturing cycle time has increased while customer-response time has decreased.

16.28 ✶✶ Quality performance


Sydney Ltd sells 250 000 V148 valves to the car and truck industry. Sydney Ltd has a capacity of 150 000
machine-hours and can produce two valves per machine-hour. V148’s contribution margin per unit is $7.
Sydney Ltd sells only 250 000 valves because 50 000 valves (20% of the good valves) need to be
reworked.
It takes 1 machine-hour to rework two valves, so 25 000 hours of capacity are used in the rework process.
Sydney Ltd’s rework costs are $550 000. Rework costs consist of:
■ direct materials and direct rework labour (variable costs)—$5 per unit
■ fixed costs of equipment, rent and overhead allocation—$6 per unit.
Sydney Ltd’s process designers have developed a modification that would maintain the speed of the
process and ensure 100% quality and no rework. The new process would cost $538 000 per year. The
following additional information is available:
■ The demand for Sydney Ltd’s V148 valves is 400 000 per year.
■ Truton Ltd has asked Sydney Ltd to supply 27 000 T752 valves (another product) if Sydney Ltd
implements the new design. The contribution margin per T752 valve is $12. Sydney Ltd can make one
T752 valve per machine-hour with 100% quality and no rework.

Required
1. Suppose that Sydney Ltd’s designers implement the new design. Should Sydney Ltd accept Truton
Ltd’s
order for 27 000 T752 valves? Show your calculations.
2. Should Sydney Ltd implement the new design? Show your calculations.
3. What non-financial and qualitative factors should Sydney Ltd consider in deciding whether to
implement the new design?

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