[CH17]

1. The Taguchi Quality Loss Function (QLF) demonstrates that as the quality measure of a product declines,
the loss due to quality defects: A. Increases as a quadratic function.
2. The quality cost of prevention: C. Is considered an "upstream" cost.
3. Which of the following is not an expected result of improved quality of operations? A. Decreased inventory turnover.
4. ISO 14000: A. Provides a set of quality standards that relate to environmental management.
5. Typically, as prevention and appraisal costs increase, other costs of quality: D. Decrease.
6. Regardless of the differences in format, a common feature that should be present in any Cost-of-Quality
(COQ) Report is that the report: A. Promotes the management and control of quality-related costs.
7. A common characteristic among control charts, histograms, Pareto diagrams, and cause-and-effect diagrams is that they
are: C. Visual representations of quality-related problems.
8. The set of international quality-related standards, adopted in 1987 and revised in both 1994 and in 2000, is referred to as: D.
ISO 9000.
9. Studies have shown that improvements in quality can lead to: D. Increases in productivity (e. g., lower manufacturing costs)
10. Conformance to a quality specification expressed as a specified range around a target is: C. Goalpost conformance.
11. Conformance to a quality standard that requires all products or services to meet exactly the target value with no variation
allowed is: D. Absolute quality conformance.
12. A proper role for accounting in terms of managing and controlling quality is all of the following except: D. Identifying
operational constraints.
13. The term performance quality refers to: B. The gap between product design specifications and actual performance of the
product.
14. Which of the following statements regarding the meaning of "quality" is true? A. Total quality can be decomposed into two
broad components: features and performance.
15. Which of the following is not a characteristic of the general framework for managing and controlling
quality depicted in Chapter 17? E. Standard cost variance analysis, based on flexible budgets.
16. Management accountants can help support the quality initiatives of management by supplying decision makers with
relevant financial information regarding these initiatives. Which of the following statements is true regarding costs that are
relevant for decision making within this context? D. Relevant costs are future costs that differ across the decision alternatives.
17. All of the following approaches can be used to set quality-related performance expectations except: E. Ideal Performance.
18. The term Six Sigma refers to: C. A business process-improvement approach that seeks to find and eliminate causes of
defects and errors.
19. Which one of the following is not a category of the Cost of Quality (COQ) reporting model? A. Value-stream cost.
20. In a Cost- of- Quality reporting framework, costs incurred to keep quality defects from occurring are classified as: D.
Prevention costs.
21. In a Cost-of-Quality (COQ) reporting framework, costs incurred in conjunction with the measurement
and analysis of data to ascertain conformity of products and services to specification are properly classified as:
B. Appraisal costs.
22. Costs incurred as a result of poor quality found through appraisal prior to delivery of the product to the
customer are, in a Cost-of-Quality (COQ) reporting framework, considered: C. Internal failure costs.
23. In a Cost of Quality (COQ) framework, warranty costs are properly classified as: E. External failure costs.
24. In a Cost of Quality (COQ) framework, rework costs incurred before shipment of product are considered:
D. Internal failure costs.
25. In a Cost of Quality (COQ) reporting framework, scrap costs because of quality failure would be classified as: D. Internal
failure costs.
26. In a Cost of Quality (COQ) report, costs to acquire and install training equipment would be classified as:
A. Prevention costs.
27. In a Cost of Quality (COQ) report, sales returns and allowances due to quality deficiency would be classified as: E. External
failure costs.
28. In a Cost of Quality (COQ) report, test equipment maintenance costs would be classified as: C. Appraisal costs.
29. In a typical Cost of Quality (COQ) report, instructor fees for quality training would be classified as: A. Prevention costs.
30. For Cost of Quality (COQ) reporting purposes, contribution margin of canceled sales orders due to quality deficiency would
be classified as: D. External failure costs.
31. For Cost of Quality (COQ) reporting purposes, materials inspection costs would be classified as: C. Appraisal costs.
32. Inspection costs for reworked units would be classified, for Cost of Quality (COQ) reporting purposes, as:
D. Internal failure costs.
33. The "cost of conformance" in a Cost-of-Quality reporting system includes: A. Prevention costs and appraisal costs.
34. In a Cost-of-Quality (COQ) reporting framework, the "cost of nonconformance" includes: B. Internal failure costs and
external failure costs.
35. All of the following are examples of internal nonfinancial quality indicators except: A. Number of customer complaints.
36. Cycle time efficiency is: A. Defined as the ratio of time spent on value-added activities to the sum of time spent on value-
added plus non-value-added activities.
37. Which of the following is not an external nonfinancial measure of quality? A. Number of defective parts produced.
38. Which of the following statements about nonfinancial indicators of quality is not true? B. Generally speaking, they are
more costly to generate than financial measures of quality.
39. A graph that depicts successive observations of an operation taken at constant intervals is a(n): A. Control chart.
40. A graphical representation of the variation in a given set of data is a(n): C. Histogram.
41. A graphical representation of frequency of occurrence of the factors contributing to an indicated quality problem, ordered
from the most to the least frequent, is a(n):B. Pareto diagram.
42. A graphical method that organizes a chain of causes and effects to sort out root causes and identify relationships between
causes or variables is a(n): D. Fish-bone (i.e., Ishikawa) diagram.
43. Which of the following is a tool that indicates how frequently each type of quality defect occurs? B. Pareto diagram.
44. A tool that can be used to identify potential causes of failures or defects is a: C. Fishbone (i.e., Ishikawa) diagram.
45. A shows trends in a quality measure over time. D. Run chart
46. Which of the following statements about product quality is not true? D The most expensive cost to the firm for a quality
failure in the field is the cost of emergency service to fix the problem or to replace the product.
47. Within a Cost-of-Quality (COQ) system, product liability resulting from a legal action is classified as a(n):
B. External failure cost.
48. The four categories of cost associated with a Cost-of-Quality (COQ) reporting system are: B. External failure, internal
failure, prevention, and appraisal.
49. In a Cost-of-Quality (COQ) reporting framework, the cost of scrap, rework, and tooling changes are
categorized as a(n): B. Internal failure cost.
50. All of the following costs are generally included in a Cost-of-Quality (COQ) report except: C. The cost of making sales calls.
--Verizon Manufacturing Company spent $400,000 in 2012 to inspect incoming components. Of the $400,000, $240,000 is
fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes two components for each finished product.
Internal failure costs average $80 per failed unit of finished goods. In 2012, five percent of all completed items had to be
reworked. External failure costs average $200 per failed unit. The company's average external failures are one percent of units
sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of
quality (COQ), Verizon contracted Quality-is-Free Consultants, Inc. (QIFC) to study ways to improve product quality and to
reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $60,000
annual cost for training and $150,000 for equipment rental and maintenance. The new equipment will eliminate $40,000 of
the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 10 percent, and
cut product failures by half. The company paid the consulting firm $100,000 in early January 2013 for the project. Verizon
expects no changes in its operating level in the foreseeable future.
51. The $100,000 payment to the consulting firm for COQ reporting purposes is best classified as a(n): A. Prevention cost.
52. What is the current 2012 total Cost of Quality (COQ)? D. $2,800,000.
53. What effect does the new equipment have on appraisal costs? C. $170,000 increase.
54. How much are internal failure costs projected to change? D. $160,000 decrease.
55. How much do you expect total external failure costs to change? D. $400,000 decrease.
56. What is the change in total quality cost projected for 2013? B. $290,000 decrease.
--Pandra Manufacturing specifies the quality characteristic of one of its popular products to be 0.500" ±0.020. An analysis of
company records for the last two years suggests that the average cost for warranty repair or replacement is $125 per unit. The
customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic
exceeds on either side of the target of 0.500, by the tolerance of 0.020.
57. What is the cost coefficient, k, in the Taguchi loss function for this company? D. $312,500.
58. Using a Taguchi loss function for this company, what is the amount of the estimated loss when the actual
quality characteristic, x, is 0.505? B. $7.8125.
59. What is the amount of the estimated loss using a Taguchi loss function if the actual quality characteristic, x, is 0.510? B.
$31.25.
60. Oslo Company's target quality characteristic, T, for one of its key components is set at 82. Using the Taguchi Loss Function
the company has determined the cost coefficient, k, to be $6,000. What is the estimated loss, L(x), if the value of the quality
characteristic, x, is 85? E. $54,000.
61. Heidelberg Manufacturing specifies the quality characteristic for one of its key components to be 154" ±4. The cost of
failure is estimated to be $8,000 per unit. Using the Taguchi Loss Function the firm has estimated the loss, L(x), at the quality
characteristic that the firm has experienced, x, to be $4,500. What is the estimated loss if the deviation from the value of the
quality characteristic doubled? D. $18,000.
62. Over the last few months, Ithaca Precision Instruments (IPI) obtained the following measurements on a key quality
characteristic of its product: The company's experience has been that a customer will reject a product that deviates from the
target quality characteristic of 0.50 by more than 0.004. Each rejection costs the firm $5. Determine the expected loss of the
observed quality characteristic for IPI. Round final steps of calculation to 4 decimal places (e.g., $18.89568 becomes $18.8957).
D. $108.1250.
--The desired target quality characteristic of a product of Hanson Component Manufacturing is 0.5. The customer-service
manager knows that customers are likely to complain when the specification is off the desired quality characteristic by more
than 0.025. On average it costs the firm $2,000 to handle and resolve each complaint. The production manager of the Hanson
Manufacturing suggests that the company test the product more thoroughly before shipping. The cost of additional testing
and adjustments is estimated at $30 per unit.
63. For Hanson, what is the value of k, the cost coefficient in the Taguchi Loss Function? E. $3,200,000.
64. Given the company's cost coefficient, k, what should the tolerance be (approximately) before conducting additional testing
and adjusting at the factory? B. 0.0030615.
65. Assume that based on the company's cost information, tolerance is set at 0.0009. What should the target specification
("target specs") for the product be? D. 0.500 +/- 0.0009
66. Quality costs for services include: D. Prevention costs, appraisal costs, internal failure costs, and external failure costs.
67. Which of the following is not a nonfinancial quality metric? C. Number of machine setups
68. A quality circle: C. Is a small group of employees from the same work area who meet regularly to identify and solve work-
related problems and to implement and monitor solutions to these problems.
69. Within the context of managing and controlling quality, the term "tolerance" refers to all of the following
except: D. 1 minus the cost coefficient, k, in the Taguchi loss function.
--Ladder Manufacturing specifies the quality characteristic of one of its popular products to be 0.400" ± 0.010. An analysis of
company records for the last two years suggests that the average cost for warranty repair or replacement is $100 per unit. The
customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic
exceeds on either side of the target of 0.400, by the tolerance of 0.010.
70. What is the cost coefficient, k, for the Taguchi loss function associated with this situation? D. $1,000,000.
71. What is the amount of the estimated loss, L(x), using a Taguchi loss function, when the actual quality characteristic, x, is
0.405? A. $25.
72. What is the amount of the estimated loss, L(x), using a Taguchi loss function, if the actual quality characteristic, x, is 0.41?
B. $100.
73. Which of the following is not a characteristic of a lean accounting system? A. Calculated costs are used in setting product
prices.
74. Value stream income statements, which are part of a lean accounting system, have all of the following characteristics
except: E. They eliminate the need to deal with indirect costs.
75. Which of the following is not a point of difference between lean manufacturing and traditional manufacturing processes?
B. Traditional systems motivate reductions in inventory holdings, while lean focuses on reducing idle time.
76. Lean manufacturing principles are derived in large part from the Toyota Production System (TPS). Which of the following is
not associated with the TPS? A. Use of batch processing.
77. One of the key elements of lean accounting is the use of the value stream income statement. Which of the following is not
a characteristic of value stream income? C. Decreased use of direct-cost tracing.
78. Which of the following is not one of the five principles of lean manufacturing? A. Demand-push production.
79. Which of the following is not a characteristic of lean manufacturing? C. Increase in inventory.
80. Which of the following is not a characteristic of a lean accounting system? D. The system incorporates the use of standard
costs and standard cost variances.
81. Which of the following approaches to cost-system design is likely most appropriate for a lean manufacturing context? C.
Value-stream costing.
82. Value stream costing attempts to do all of the following except: C. Identify and accumulate all value-stream costs.
83. Which of the following nonfinancial performance indicators would be least applicable in a lean accounting system? E.
Percentage of overhead costs absorbed into production.
84. In a lean accounting system, costs are assigned to products by: A. Tracing costs to product value streams as much as
possible.
85. Which of the following terms represents the unyielding and continuous effort by everyone in the organization to
understand, meet, and exceed customer expectations? E. Total quality management (TQM).
86. Which of the following is not a likely consequence of improved product quality? A. Increased sales returns.
87. Which of the following is not a likely consequence of investments made to improve quality? A. Reduced inventory
turnover.
88. Which of the following statements is not true? B. Quality consists of two broad components: performance quality and non-
performance quality.
89. Six Sigma, absolute versus goalpost, and Taguchi loss functions all represent ways to: C. Set performance expectations
regarding the level of quality associated with a product, service, or process.
90. According to the text, which of the following items is not considered a broad guideline that can be used in the construction
of a comprehensive framework (or system) for the management and control of performance quality? A. Use of target costing.
91. Which of the following terms refers to a mathematical depiction of estimated quality costs and the level
of deviation from a quality target? C. Taguchi quality loss function.
92. Which of the following items represents a quadratic loss function associated with deviation of actual quality from target
quality? D. Taguchi quality loss function.
93. Which of the following would not be expected in response to a move to a Just-in-Time (JIT) production philosophy? A.
Increases in production cycle times.
94. Which of the following is not true regarding the determination of relevant costs and relevant revenues associated with
quality-related initiatives (such as the move to JIT production)? B. Relevant costs exclude opportunity costs since these costs
are not normally recorded by accounting systems.
95. Which of the following items is not a tool that can be used by management to detect poor quality in an operation? C.
Taguchi loss function.
96. Which of the following items is not a tool that can be used by management to take corrective action in a process deemed
out of control? B. Statistical quality control (SQC) chart.
97. The tool that consists of a histogram of factors contributing to a specified quality problem, ordered from the most to the
least frequently occurring factor is a: A. Pareto diagram.
98. The tool that can be used to depict main causes for an identified quality problem, subdivided into categories represented
as machines, materials, methods, and manpower, is called a: A. Cause-and-effect diagram.
99. All of the following would generally be included in a Cost of Quality (COQ) report except: C. Direct materials cost.
100.Listed below are selected line items from the Cost of Quality (COQ) report for Watson Products for last month: What was
Watson's total prevention and appraisal cost for last month? D. $1,940.
101.Statistical quality control often involves the use of control charts, whose basic purpose is to: C. Detect performance trends
away from normal operations.
102.Product-quality-related costs are part of a total quality control program. A product-quality-related cost incurred in
detecting individual products that do not conform to specifications is an example of a(n):B. Appraisal cost.
--Wolk Corporation is a highly automated manufacturing firm. The vice president of finance has decided that traditional
standards are inappropriate for performance measures in an automated environment. Labor is insignificant in terms of the
total cost of production and tends to be fixed, material quality is considered more important than minimizing material cost,
and customer satisfaction is the number one priority. As a result, delivery performance measures have been chosen to
evaluate performance. The following information is considered typical of the time involved to complete customer orders. Wait
time:
103.What is the processing cycle efficiency (PCE) for this order (rounded)? B. 13.6%.
104.What is the production (manufacturing) lead time for this order? B. 8 days.
105.The cost of scrap, rework, and tooling changes in a product quality cost system are properly categorized as a(n): C.
Internal failure cost.
106.The cost of statistical quality control in a product quality cost system is properly characterized as a(n):
E. Appraisal cost.
107.An example of an internal failure cost in a Cost-of-Quality (COQ) reporting system is: C. Rework.
108.In 2013 a manufacturing company instituted a Total Quality Management (TQM) program and one year later produced
the report shown below: On the basis of the above report, which one of the following statements is most likely correct? A. An
increase in conformance costs resulted in a higher-quality product, and therefore, resulted in a decrease in non-conformance
costs.
109.Which of the following items is not considered an external quality metric? D. Throughput efficiency (i.e., the ratio of
throughput to resources used).