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CPAPrepChapter19 - CHAPTER 19 BALANCED SCORECARD QUALITY...

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CHAPTER 19 BALANCED SCORECARD: QUALITY, TIME, AND THE THEORY OF CONSTRAINTS 19-1 Quality 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. 19-2 Quality 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. 19-3 Exhibit 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. 19-4 An 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. 19-5 Three 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.
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19.16 (30 min.) Costs of quality. 1. The ratios of each COQ category to revenues and to total quality costs for each period are as follows: Costen, Inc.: Semi-annual Costs of Quality Report (in thousands) 6/30/2009 12/31/2009 6/30/2010 12/31/2010 Actual % of Revenues % of Total Quality Costs Actual % of Revenues % of Total Quality Costs Actual % of Revenues % of Total Quality Costs Actual % of Revenues % of Total Quality Costs (2) = (3) = (5) = (6) = (8) = (9) = (11) = (12) = (1) (1) ÷ $8,240 (1) ÷ $2,040 (4) (4) ÷ $9,080 (4) ÷ $2,159 (7) (7) ÷ $9,300 (7) ÷ $1,605 (10) (10) ÷ $9,020(10) ÷ $1,271 Prevention costs Machine maintenance $ 440 $ 440 $ 390 $ 330 Supplier training 20 100 50 40 Design reviews 50 214 210 200 Total prevention costs 510 6.2% 25.0% 754 8.3% 34.9% 650 7.0% 40.5% 570 6.3% 44.9% Appraisal costs Incoming inspection 108 123 90 63 Final testing 332 332 293 203 Total appraisal costs 440 5.3% 21.6% 455 5.0% 21.1% 383 4.1% 23.9% 266 3.0% 20.9% Internal failure costs Rework 231 202 165 112 Scrap 124 116 71 67 Total internal failure costs 355 4.3% 17.4% 318 3.5% 14.7% 236 2.5% 14.7% 179 2.0% 14.1%
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