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The Door Company manufactures doors. Classify each of the following quality costs as prevention costs Answer

The Door Company manufactures doors. Classify each of the following quality costs as prevention costs Answer

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)
1. (TCO 11) Nonfinancial measures for internal quality performance include all but which of the following? (Points: 3)
Employee empowerment
Process yields
Product defect levels
2. (TCO 11) Which of the following is NOT a nonfinancial performance measure for customer satisfaction? (Points: 3)
Number of defective units shipped to customers as a percentage of the total units of product shipped
Number of customer complaints
On-time delivery
Number of defects for each product line
3. (TCO 11) Which of the following is NOT one of the steps in managing bottlenecks under the theory of constraints? (Points: 3)
Identify the bottleneck resource by searching for resources with large quantities of inventory waiting to be worked on.
Increase the efficiency and capacity of the nonbottleneck resources.
Subordinate all nonbottleneck operations to the bottleneck operation.
Increase the efficiency and capacity of the bottleneck operation.
4. (TCO 11) Design engineering is an example of: (Points: 3)
external failure costs
internal failure costs
prevention costs
appraisal costs
5. (TCO 11) Regal Products has a budget of $900,000 in 20X6 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 new equipment. 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 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate 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 failures are reduced by 50% with the new procedures? (Points: 3)
$500,000 decrease
$750,000 decrease
$33,750 decrease
$67,500 decrease

Internal failure rate (150,000 x 0.03) 4,500
Cost per unit x $15
Total $67,500
Savings rate x 0.50
Savings $33,750
6. (TCO 12) Which of the following categories of costs are important when managing inventories of goods for sale according to the authors of the text? (Points: 3)
Purchasing, ordering, supply, spoilage, and opportunity
Purchasing, stockout carrying, ordering, and quality
Buying, holding, invoicing, opportunity, and investment
Supply, obsolescence, holding, stockout, and transportation-in
7. (TCO 12) Obsolescence is an example of which cost category? (Points: 3)
ordering costs
carrying costs
labor costs
quality costs
8. (TCO 12) Which of the following is an assumption of the economic-order-quantity decision model? (Points: 3)
There will be timely labor costs.
The quantity ordered can vary at each reorder point.
No stockouts occur.
Demand ordering costs and carrying costs fluctuate.
9. (TCO 12) ) The ________ describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers. (Points: 3)
supply chain
material requirements plan (MRP)
customer list
enterprise requirements plan (ERP)
10. (TCO 12) Liberty Celebrations, Inc., manufactures a line of flags. The annual demand for its flag display is estimated to be 100,000 units. The annual cost of carrying one unit in inventory is $1.60, and the cost to initiate a production run is $30. There are no flag displays on hand but Liberty had scheduled 60 equal production runs of the display sets for the coming year, the first of which is to be run immediately. Liberty Celebrations has 250 business days per year. Assume that sales occur uniformly throughout the year and that production is instantaneous. If Liberty Celebrations does not maintain a safety stock, the estimated total carrying cost for the flag displays for the coming year is the estimated total setup cost for the flag displays for the coming year is (Points: 3)


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