We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

See Pricing

What's Your Topic?

Hire a Professional Writer Now

The input space is limited by 250 symbols

What's Your Deadline?

Choose 3 Hours or More.
2/4 steps

How Many Pages?

3/4 steps

Sign Up and See Pricing

"You must agree to out terms of services and privacy policy"
Get Offer

Solutions Chapter 19

Hire a Professional Writer Now

The input space is limited by 250 symbols

Deadline:2 days left
"You must agree to out terms of services and privacy policy"
Write my paper

Chapter 19 BALANCED SCORECARD: quality, time, and the theory of constraints 19-1Quality costs (including the opportunity cost of lost sales because of poor quality) can be as much as 10% to 20% of sales revenues of many organizations. Quality-improvement programs can result in substantial cost savings and higher revenues and market share from increased customer satisfaction. 19-2Quality of design refers to how closely the characteristics of a product or service meet the needs and wants of customers. Conformance quality refers to the performance of a product or service relative to its design and product specifications.

9-3Exhibit 19-1 of the text lists the following six line items in the prevention costs category: design engineering; process engineering; supplier evaluations; preventive equipment maintenance; quality training; and testing of new materials. 19-4An internal failure cost differs from an external failure cost on the basis of when the nonconforming product is detected. An internal failure is detected before a product is shipped to a customer, whereas an external failure is detected after a product is shipped to a customer.

Don't use plagiarized sources. Get Your Custom Essay on
Solutions Chapter 19
Just from $13,9/Page
Get custom paper

9-5Three methods that companies use to identify quality problems are: (a) a control chart which is a graph of a series of successive observations of a particular step, procedure, or operation taken at regular intervals of time; (b) a Pareto diagram, which is a chart that indicates how frequently each type of failure (defect) occurs, ordered from the most frequent to the least frequent; and (c) a cause-and-effect diagram, which helps identify potential causes of failure. 19-6No, companies should emphasize financial as well as nonfinancial measures of quality, such as yield and defect rates.

Nonfinancial measures are not directly linked to bottom-line performance but they indicate and direct attention to the specific areas that need improvement to improve the bottom line. Tracking nonfinancial measures over time directly reveals whether these areas have, in fact, improved over time. Nonfinancial measures are easy to quantify and easy to understand. 19-7 Examples of nonfinancial measures of customer satisfaction relating to quality include the following: 1. the number of defective units shipped to customers as a percentage of total units of product shipped; 2. he number of customer complaints; 3. delivery delays (the difference between the scheduled delivery date and date requested by customer); 4. on-time delivery rate (percentage of shipments made on or before the promised delivery date); 5. customer satisfaction level with product features (to measure design quality); 6. market share; and 7. percentage of units that fail soon after delivery. 19-8Examples of nonfinancial measures of internal-business-process quality: 1. the percentage of defects for each product line; 2. process yield (rates of good output to total output at a particular process; 3. anufacturing lead time (the amount of time from when an order is received by production to when it becomes a finished good); and 4. number of product and process design changes 19-9Customer-response time is how long it takes from the time a customer places an order for a product or a service to the time the product or service is delivered to the customer. Manufacturing lead time is how long it takes from the time an order is received by manufacturing to the time a finished good is produced. Manufacturing lead time is only one part of customer-response time.

Delays in delivering an order for a product or service can also occur because of delays in receiving customer orders and delays in delivering a completed order to a customer. [pic]= [pic] + [pic]+ [pic] 19-10No. There is a trade-off between customer-response time and on-time performance. Simply scheduling longer customer-response time makes achieving on-time performance easier. Companies should, however, attempt to reduce the uncertainty of the arrival of orders, manage bottlenecks, reduce setup and processing time, and run smaller batches.

This would have the effect of reducing both customer-response time and improving on-time performance. 19-11Two reasons why lines, queues, and delays occur is (1) uncertainty about when customers will order products or services––uncertainty causes a number of orders to be received at the same time, causing delays, and (2) limited capacity and bottlenecks––a bottleneck is an operation where the work to be performed approaches or exceeds the available capacity. 19-12No.

Adding a product when capacity is constrained and the timing of customer orders is uncertain causes delays in delivering all existing products. If the revenue losses from delays in delivering existing products and the increase in carrying costs of the existing products exceed the positive contribution earned by the product that was added, then it is not worthwhile to make and sell the new product, despite its positive contribution margin. The chapter describes the negative effects (negative externalities) that one product can have on others when products share common manufacturing facilities. 9-13The three main measures used in the theory of constraints are the following: 1. throughput contribution equal to revenues minus direct material cost of the goods sold; 2. investments equal to the sum of materials costs in direct materials, work-in-process and finished goods inventories, research and development costs, and costs of equipment and buildings; 3. operating costs equal to all costs of operations such as salaries, rent, and utilities (other than direct materials) incurred to earn throughput contribution. 9-14The four key steps in managing bottleneck resources are: Step 1:Recognize that the bottleneck operation determines throughput contribution of the entire system. Step 2:Search for, and identify the bottleneck operation. Step 3:Keep the bottleneck operation busy, and subordinate all nonbottleneck operations to the bottleneck operation. Step 4:Increase bottleneck efficiency and capacity. 19-15The chapter describes several ways to improve the performance of a bottleneck operation. 1. Eliminate idle time at the bottleneck operation. 2.

Process only those parts or products at the bottleneck operation that increase throughput contribution, not parts or products that will remain in finished goods or spare parts inventories. 3. Shift products that do not have to be made on the bottleneck machine to nonbottleneck machines or to outside processing facilities. 4. Reduce setup time and processing time at bottleneck operations. 5. Improve the quality of parts or products manufactured at the bottleneck operation. 19-17(20 min. )Costs of quality analysis, nonfinancial quality measures. |1. & 2. 2007 |2008 | |Revenues |$20,000,000 |$25,000,000 | | | |Percentage | |Percentage | | | |of Revenues | |of Revenues | | |Cost |(4) = (3) ? Cost |(2) = (1) ? | |Costs of Quality |(3) |$20,000,000 |(1) |$25,000,000 | | | | | | | |Prevention costs | | | | | |Design engineering $ 210,000 | |$ 600,000 | | |Preventive equipment maintenance |110,000 | |200,000 | | |Supplier evaluation |80,000 | |200,000 | | |Total prevention costs |400,000 |2. 0% |1,000,000 |4. % | | | | | | | |Appraisal costs | | | | | |Inspection of production |220,000 | |170,000 | | |Product-testing labor and equipment |530,000 | |250,000 | | |Incoming materials inspection |50,000 | |80,000 | | |Total appraisal costs |800,000 |4. 0% |500,000 |2. % | | | | | | | |Internal failure costs | | | | | |Scrap and rework |720,000 | |670,000 | | |Breakdown maintenance |180,000 | |80,000 | | |Total internal failure costs |900,000 |4. 5% |750,000 |3. % | | | | | | | |External failure costs | | | | | |Cost of returned goods |120,000 | |300,000 | | |Customer support |80,000 | |65,000 | | |Warranty repair |1,000,000 | |635,000 | | | |1,200,000 |6. 0% |1,000,000 |4. 0% | |Total costs of quality |$3,300,000 |16. 5% |$3,250,000 |13. 0% | Between 2007 and 2008, Preston’s costs of quality have declined from 16. 5% of sales to 13% of sales.

The analysis of individual costs of quality categories indicates that Preston began allocating more resources to prevention activities––design engineering, preventive maintenance and supplier evaluations in 2008 relative to 2007. As a result, appraisal costs declined from 4% of sales to 2% of sales, costs of internal failure fell from 4. 5% of sales to 3%, and external failure costs decreased from 6% of sales to 4%. The one concern here is that, although external failure costs have decreased, the cost of returned goods has more than doubled, on a 25% rise in revenues. Preston’s management should investigate the reasons for this and initiate corrective action. 3.

Examples of nonfinancial quality measures that Preston Corporation could monitor in its balanced scorecard as part of a total quality-control effort are the following: a. number of defective units shipped to customers as a percentage of total units shipped; b. ratio of good output to total output at each production process; and c. percent of customers who would buy another Preston product or recommend it as their top choice to other potential buyers. 19-19(25 min. )Nonfinancial measures of quality and time. 1. 20062007 a. Percentage of defective units shipped[pic]=4%[pic]=3% b. On-time delivery[pic]=85%[pic]=90% c. [pic] [pic]=5%[pic]=4. 7% d. [pic][pic]=6%[pic]=5. % 2. The calculations in requirement 1 indicate that ESC’s performance on both quality and timeliness has improved. Quality has improved because: (a) percentage of defective units shipped has decreased from 4% to 3%; (b) customer complaints have decreased from 5% to 4. 7%; and (c) percentage of units reworked during production has decreased from 6% to 5. 7%. Timeliness has improved as on-time delivery has increased from 85% to 90%. Of course, there is a relationship between the improvements in quality and timeliness. Better quality and less rework reduces delays in production and enables faster and on-time delivery to customers. 3a. 20062007 pic][pic][pic] 3b. Output per labor-hour may have declined from 2006 to 2007 either because workers were less productive or more likely because the initial implementation of the quality program may have resulted in lost production time as employees were trained and became more adept at solving production quality problems. As workers implement good quality practices and defects and rework decrease over time, it is possible that both quality and productivity (output per labor-hour) will increase. 3c. It is not clear that the lower output per labor-hour will decrease operating income in 2007. The higher labor costs in 2007 could pay off in many ways.

Higher quality and lower defects will likely result in lower material costs because of lower defects and rework. Internal and external failure costs will also be lower, resulting in lower customer returns and warranty costs. Customer satisfaction will likely increase, resulting in higher sales, higher prices, and higher contribution margins. Indeed the 10% increase in the number of units produced and sold in 2007 may well have been due to quality improvements. Overall, the benefits of higher quality in 2007 may very well exceed the higher labor costs per unit of output. 19-20(25 min. )Quality improvement, relevant costs, and relevant revenues. 1. Relevant costs over the next year of choosing the new lens = $55 ( 20,000 copiers = $1,100,000 |Relevant Benefits over | | |the Next Year of Choosing the New Lens | |Costs of quality items | | |Savings on rework costs | | |$40 ( 12,875 rework hours |$ 515,000 | |Savings in customer-support costs | | |$20 ( 900 customer-support-hours |18,000 | |Savings in transportation costs for parts | | |$180 ( 200 fewer loads |36,000 | |Savings in warranty repair costs | | |$45 ( 7,000 repair-hours |315,000 | |Opportunity costs | | |Contribution margin from increased sales |900,000 | |Cost savings and additional contribution margin |$1,784,000 | Because the expected relevant benefits of $1,784,000 exceed the expected relevant costs of the new lens of $1,100,000, Photon should introduce the new lens. Note that the opportunity cost benefits in the form of higher contribution margin from increased sales is an important component for justifying the investment in the new lens. 2. The incremental cost of the new lens of $1,100,000 is greater than the incremental savings in rework and repair costs of $884,000 ($515,000 + $18,000 + $36,000 + $315,000). Investing in the new lens is beneficial, provided it generates additional contribution margin of at least $216,000 ($1,100,000 – $884,000).

Contribution margin per unit is $900,000 ? 150 copiers = $6,000 per copier. Therefore, Photon needs additional unit sales of at least $216,000 ? $6,000 = 36 copiers to justify investing in the new lens on financial considerations alone. 19-21(20(25 min. ) Customer-response time, on-time delivery. 1. January-JuneJuly-December Pizzas delivered in 30 minutes or less[pic]=25%[pic]=30% Pizzas delivered in between 31 and 45 minutes[pic]=50%[pic]=55% Pizzas delivered in between 46 and 60 minutes[pic]=20%[pic]=10% Pizzas delivered in between 61 and 75 minutes[pic]=5%[pic]=5% Total100%100% Yes, customer-response time has improved from January–June 2007 to July–December 2007.

The percentage of pizzas delivered in less than 30 minutes increased by 5%, and pizzas delivered in less than or equal to 45 minutes increased by 10% [85% (30% + 55%) in July–December minus 75% (25% + 50%) in January–June]. In turn, pizzas delivered in greater than 45 minutes decreased by 10% [25% (20% + 5%) in January–June minus 15% (10% + 5%) in July–December]. 2. In the January-June 2007 period, Pizzafest should quote a customer-response time of (a) 45 minutes to achieve on-time delivery performance of 75% (75% of all pizzas were delivered within this time frame) and (b) 60 minutes to achieve on-time delivery performance of 95% (95% of all pizzas were delivered within this time frame). 3. Yes.

In the July-December 2007 period, Pizzafest would achieve on-time delivery performance of (a) 85% (greater than its target performance level of 75%) if it had quoted a customer-response time of 45 minutes and (b) its target performance level of 95% if it had quoted a customer-response time of 60 minutes. 4aContribution margin from selling 20,000 additional pizzas 20,000 ( ($13 ( $7)$120,000 Cost of having to give 15,000 pizzas free because of late deliveries, 15,000 ( $7 105,000 Increase in operating income from making the free pizza offer$ 15,000 4b. Pizzafest should carefully monitor the quality of its pizzas. In its desire to deliver pizzas on time, Pizzafest should not compromise on the time needed to cook the pizza, nor should it increase oven temperatures beyond acceptable levels in order to cook the pizza faster.

Pizzafest should also ensure that drivers responsible for delivering the pizza drive carefully. In their desire to reach a customer quickly, road safety should not be compromised. 4c. Some ways to reduce customer-response times are: i) Start making the pizza soon after a customer calls. Waiting to start making a pizza is a nonvalue-added delay. ii) Ensure that adequate labor is available to start preparing the pizza for cooking, and adequate oven capacity is available to minimize waiting time before cooking commences. iii) Have an adequate number of drivers available to deliver the pizzas. iv) Maintain ovens well to avoid down time. v) Clean ovens quickly after a pizza is done in preparation for cooking the next pizza. i) Keep some basic cheese pizzas ready ahead of time so that only toppings need to be added after an order is received. vii) Make sure each pizza cooked is of good quality (not overcooked or undercooked) so that no pizzas have to be thrown away and redone. Poor quality will cause delays. 19-23 (20–25 min. ) Waiting time, relevant costs, and relevant revenues. 1. If the branch expects to serve 60 customers each day and it takes 4 minutes to serve a customer, the average time that a customer will wait in line before being served is: = [pic]= [pic]= [pic]= = 8 minutes 2. Suppose the bank counter is kept open for 336 minutes. Then [pic]= [pic] = [pic] = 5 minutes The counter must be kept open for 336 minutes to reduce average waiting time to 5 minutes. 3.

Incremental operating income from providing new services$30 Incremental teller cost (1 additional hour ( $10 per hour) 10 Net increase in operating income from providing new services$20 Yes, the bank should offer the new services since the relevant benefits exceed the relevant costs. 19-24 (15 min. ) Theory of constraints, throughput contribution, relevant costs. 1. Finishing is a bottleneck operation. Therefore, producing 1,000 more units will generate additional throughput contribution and operating income. Increase in throughput contribution ($72 – $32) ( 1,000$40,000 Incremental costs of the jigs and tools 30,000 Net benefit of investing in jigs and tools$10,000

Mayfield should invest in the modern jigs and tools because the benefit of higher throughput contribution of $40,000 exceeds the cost of $30,000. 2. The Machining Department has excess capacity and is not a bottleneck operation. Increasing its capacity further will not increase throughput contribution. There is, therefore, no benefit from spending $5,000 to increase the Machining Department’s capacity by 10,000 units. Mayfield should not implement the change to do setups faster. 19-25 (15 min. ) Theory of constraints, throughput contribution, relevant costs. 1. Finishing is a bottleneck operation. Therefore, getting an outside contractor to produce 12,000 units will increase throughput contribution.

Increase in throughput contribution ($72 – $32) ( 12,000$480,000 Incremental contracting costs $10 ( 12,000 120,000 Net benefit of contracting 12,000 units of finishing$360,000 Mayfield should contract with an outside contractor to do 12,000 units of finishing at $10 per unit because the benefit of higher throughput contribution of $480,000 exceeds the cost of $120,000. The fact that the cost of $10 per unit is double Mayfield’s finishing cost of $5 per unit is irrelevant. 2. Operating costs in the Machining Department of $640,000, or $8 per unit, are fixed costs. Mayfield will not save any of these costs by subcontracting machining of 4,000 units to Hunt Corporation.

Total costs will be greater by $16,000 ($4 per unit ( 4,000 units) under the subcontracting alternative. Machining more filing cabinets will not increase throughput contribution, which is constrained by the finishing capacity. Mayfield should not accept Hunt’s offer. The fact that Hunt’s costs of machining per unit are half of what it costs Mayfield in-house is irrelevant. 19-26(15 min. )Theory of constraints, throughput contribution, quality. 1. Cost of defective unit at machining operation which is not a bottleneck operation is the loss in direct materials (variable costs) of $32 per unit. Producing 2,000 units of defectives does not result in loss of throughput contribution.

Despite the defective production, machining can produce and transfer 80,000 units to finishing. Therefore, cost of 2,000 defective units at the machining operation is $32 ( 2,000 = $64,000. 2. A defective unit produced at the bottleneck finishing operation costs Mayfield materials costs plus the opportunity cost of lost throughput contribution. Bottleneck capacity not wasted in producing defective units could be used to generate additional sales and throughput contribution. Cost of 2,000 defective units at the finishing operation is: Loss of direct materials $32 ( 2,000$ 64,000 Forgone throughput contribution ($72 – $32) ( 2,000 80,000 Total cost of 2,000 defective units$144,000

Alternatively, the cost of 2,000 defective units at the finishing operation can be calculated as the lost revenue of $72 ( 2,000 = $144,000. This line of reasoning takes the position that direct materials costs of $32 ( 2,000 = $64,000 and all fixed operating costs in the machining and finishing operations would be incurred anyway whether a defective or good unit is produced. The cost of producing a defective unit is the revenue lost of $144,000. ———————– Preston Corp: Costs of Quality as a Percentage of Revenues 2. 0% 4. 0% 4. 5% 6. 0% 16. 5% 4. 0% 2. 0% 3. 0% 4. 0% 13. 0% 0. 0% 5. 0% 10. 0% 15. 0% 20. 0% Prevention Appraisal Internal Failure External Failure Total COQ Category Percentage of Revenues 2007 2008

Cite this Solutions Chapter 19

Solutions Chapter 19. (2018, Feb 28). Retrieved from https://graduateway.com/solutions-chapter-19/

Show less
  • Use multiple resourses when assembling your essay
  • Get help form professional writers when not sure you can do it yourself
  • Use Plagiarism Checker to double check your essay
  • Do not copy and paste free to download essays
Get plagiarism free essay

Search for essay samples now

Haven't found the Essay You Want?

Get my paper now

For Only $13.90/page