03 Jun Question Problem 1 – The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or
Question
Problem 1 – The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs. (13 points)
a. Retesting of reworked products
b. Downtime due to quality problems
c. Analysis of the cause of defects in production
d. Depreciation of test equipment
e. Warranty repairs
f. Lost sales arising from a reputation for poor quality
g. Quality circles
h. Rework direct manufacturing labor and overhead
i. Net cost of spoilage
j. Technical support provided to suppliers
k. Audits of the effectiveness of the quality system
l. Plant utilities in the inspection area
m. Reentering data because of keypunch errors
Problem 2 – For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly. A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information:
Annual demand in units
250
Days used per year
250
Lead time, in days
10
Ordering costs
$100
Annual unit carrying costs
$20
Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs (17 points).
Quiz
1.(TCO 11)The four cost categories in a cost of quality program are (Points : 3)
product design, process design, internalsuccess, and external success.
prevention, appraisal, internal failure, andexternal failure.
design, conformance, control, andprocess.
design, process specification, on-timedelivery, and customer satisfaction.
2.(TCO 11) ________ is a formal means ofdistinguishing between random and nonrandom variation in an operatingprocess. (Points : 3)
Statisticalprocess control (SPC)
A Paretodiagram
A cause-and-effectdiagram
A fishbonediagram
3.(TCO 11) Which of the following is NOT one of the three mainmeasurements in the theory of constraints? (Points : 3)
Investmentsor inventory
Otheroperating costs
Manufacturinglead time
Throughputcontribution
4.(TCO 11) Designengineering is an example of (Points : 3)
externalfailure costs.
internalfailure costs.
preventioncosts.
appraisalcosts.
5.(TCO 11) Regal Products has a budget of $900,000 in 20X3 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $60,000 in variable costs. The new method will require $18,000 in training costs and $120,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the newequipment. The budgeted production level is 150,000 units. Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $30,000. Internal failure costs average $15 perfailed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failurerate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company’s average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories. How much will internal failure costs change if the internal product failuresare reduced by 50% with the new procedures?(Points : 3)
$500,000decrease
$750,000decrease
$33,750decrease
$67,500decrease
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