Nonfinancial measures of quality and time. For the past two years, Worldwide Cell Phones (WCP) has been working to improve the quality of its phones. Data for 2016 and 2017 follows (in thousands of phones): 2016 2017 Cell phones produced and shipped 2,500 10,000 Number of defective units shipped 125 400 Number of customer complaints 190 250 Units reworked before shipping 150 700 Manufacturing cycle time 13 days 14 days Average customer-response time 28 days 26 days 1. For each year, 2016 and 2017, calculate the following: Required a. Percentage of defective units shipped b. Customer complaints as a percentage of units shipped c. Percentage of units reworked during production d. Manufacturing cycle time as a percentage of total time from order to delivery 2. Referring to the information computed in requirement 1, explain whether WCP’s quality and timeliness have improved.

In response to intensive foreign competition, the management of Florex Company has attempted over the past year to improve the quality of its products. A statistical process control system has been installed and other steps have been taken to decrease the amount of warranty and other field costs, which have been trending upward over the past several years. Costs relating to quality and quality control over the last two years are given below: Costs (in thousands) Last This Year Year $ 1,584 Inspection Quality engineering Depreciation of test eguipment 765 540 675 630 225 $ 1,260 $ 1,620 225 Rework labor Statistical process control Cost of field servicing $ 1,710 1,170 81 Supplies used in testing Systems development Warranty repairs Net cost of scrap Product testing Product recalls 45 630 900 1,260 24 4,140 1,530 $ 1,440 990 540 900 $ 2,700 900 Disposal of defective products 900 Sales have been flat over the past few years, at $90,000,000 per year. A great deal of money has been spent in…

The Port Authority sells a wide variety of cables and adapters for electronic equipment online. Last year the mean value of orders placed with the Port Authority was 47.28, and management wants to assess whether the mean value of orders placed to date this year is the same as last year. The values of a sample of 49,896 orders placed this year are collected and recorded in the tile PortAuthority. a. Formulate hypotheses that can be used to test whether the mean value of orders placed this year differs from the mean value of orders placed last year. b. Use the data in the file PortAuthority to conduct your hypothesis test. What is the p value for your hypothesis test? At = 0.01, what is your conclusion?

DataSpan, Incorporated, automated its plant at the start of the current year and installed a flexible manufacturing system. The company is also evaluating its suppliers and moving toward Lean Production. Many adjustment problems have been encountered, including problems relating to performance measurement. After much study, the company has decided to use the performance measures below, and it has gathered data relating to these measures for the first four months of operations. Month 1 2 3 4 Throughput time (days) ? ? ? ? Delivery cycle time (days) ? ? ? ? Manufacturing cycle efficiency (MCE) ? ? ? ? Percentage of on-time deliveries 82% 77% 74% 71% Total sales (units) 3830 3667 3479 3347 Management has asked for your help in computing throughput time, delivery cycle time, and MCE. The following average times have been logged over the last four months: Average per Month (in days) 1 2 3 4 Move time per unit 0.8 0.5 0.6 0.6 Process time per unit 2.3 2.2…

In response to intense foreign competition, Florex Company has taken steps to improve the quality of its products. A summary of its quality costs (in thousands) over the past two years is given below: Inspection Quality engineering Depreciation of test equipment Rework labor Statistical process control Cost of field servicing Supplies used in testing Systems development Warranty repairs Prevention costs: Total prevention costs Appraisal costs Total appraisal costs Internal failure costs: Costs (in thousands) Last Year Total internal failure costs External failure costs: $630 $ $ $ 420 $588 1,050 $0 1,260 $ 42 $840 $ 4,200 $420 $840 $ 2,520 $630 Net cost of scrap Product testing Product recalls Disposal of production defects. Sales have been flat over the past few years, at $84,000,000 per year. Total external failure costs Total quality cost This Year $ 1,008 Required: 1. Prepare a quality cost report for this year and last year. Note: Enter amount values in thousands. Round your…

2. At the beginning of the month, a supplier of a component used in our product notified us that, because of a minor design improvement, the price will be increased by 10% above the current standard price of $125 per unit. As a result of the improved design, we expect the number of defective components to decrease by 110 units per month. On average, 2,640 units of the component are purchased each month. Defective units are identified prior to use and are not returnable. Effect on materials price variance $ 0 Effect on materials quantity variance $ 0

DataSpan, Inc., automated its plant at the start of the current year and installed a flexible manufacturing system. The company is also evaluating its suppliers and moving toward Lean Production. Many adjustment problems have been encountered, including problems relating to performance measurement. After much study, the company has decided to use the performance measures below, and it has gathered data relating to these measures for the first four months of operations. Month 1 2 4 Throughput time (days) Delivery cycle time (days) Manufacturing cycle efficiency (MCE) Percentage of on-time deliveries Total sales (units) ? ? ? 89% 84% 81% 78% 3880 3714 3524 3390 Management has asked for your help in computing throughput time, delivery cycle time, and MCE. The following average times have been logged over the last four months: Average per Month (in days) 2 3 4 Move time per unit Process time per unit Wait time per order before start of production Queue time per unit Inspection time per…

DataSpan, Inc., automated its plant at the start of the current year and installed a flexible manufacturing system. The company is also evaluating its suppliers and moving toward Lean Production. Many adjustment problems have been encountered, including problems relating to performance measurement. After much study, the company has decided to use the performance measures below, and it has gathered data relating to these measures for the first four months of operations. Month 1 2 3 4 Throughput time (days) ? ? ? ? Delivery cycle time (days) ? ? ? ? Manufacturing cycle efficiency (MCE) ? ? ? ? Percentage of on-time deliveries 78 % 73 % 70 % 67 % Total sales (units) 2330 2230 2116 2036 Management has asked for your help in computing throughput time, delivery cycle time, and MCE. The following average times have been logged over the last four months: Average per Month (in days) 1 2 3 4 Move time per unit 0.8…

The management of International Cookwares believes that delivery performance measures must be improved if the company is to maintain its competitive edge. The following data are considered to be typical of the time to complete orders. Process time: 4 days Wait time to the start of production: 15 days Move time: 3 days Inspection time: 2 days Queue time during the production process: 8 days What is the delivery cycle time?

Recently, Ulrich Company received a report from an external consulting group on its quality costs. The consultants reported that the companys quality costs total about 21 percent of its sales revenues. Somewhat shocked by the magnitude of the costs, Rob Rustin, president of Ulrich Company, decided to launch a major quality improvement program. For the coming year, management decided to reduce quality costs to 17 percent of sales revenues. Although the amount of reduction was ambitious, most company officials believed that the goal could be realized. To improve the monitoring of the quality improvement program, Rob directed Pamela Golding, the controller, to prepare monthly performance reports comparing budgeted and actual quality costs. Budgeted costs and sales for the first two months of the year are as follows: The following actual sales and actual quality costs were reported for January: Required: 1. Reorganize the monthly budgets so that quality costs are grouped in one of four categories: appraisal, prevention, internal failure, or external failure. (Essentially, prepare a budgeted cost of quality report.) Also, identify each cost as variable (V) or fixed (F). (Assume that no costs are mixed.) 2. Prepare a performance report for January that compares actual costs with budgeted costs. Comment on the companys progress in improving quality and reducing its quality costs.

The controller of Emery, Inc. has computed quality costs as a percentage of sales for the past 5 years (20X1 was the first year the company implemented a quality improvement program). This information is as follows: Required: 1. Prepare a trend graph for total quality costs. Comment on what the graph has to say about the success of the quality improvement program. 2. Prepare a graph that shows the trend for each quality cost category. What does the graph have to say about the success of the quality improvement program? Does this graph supply more insight than the total cost trend graph does? 3. Prepare a graph that compares the trend in relative control costs versus relative failure costs. Comment on the significance of this trend.

Suppose that Kicker had the following sales and cost experience (in thousands of dollars) for May of the current year and for May of the prior year: In May of the prior year, Kicker started an intensive quality program designed to enable it to build original equipment manufacture (OEM) speaker systems for a major automobile company. The program was housed in research and development. In the beginning of the current year, Kickers accounting department exercised tighter control over sales commissions, ensuring that no dubious (e.g., double) payments were made. The increased sales in the current year required additional warehouse space that Kicker rented in town. (Round ratios to four decimal places. Round sales dollars computations to the nearest dollar.) Required: 1. Calculate the contribution margin ratio for May of both years. 2. Calculate the break-even point in sales dollars for both years. 3. Calculate the margin of safety in sales dollars for both years. 4. CONCEPTUAL CONNECTION Analyze the differences shown by your calculations in Requirements 1, 2, and 3.

Lindell Manufacturing embarked on an ambitious quality program that is centered on continual improvement. This improvement is operationalized by declining quality costs from year to year. Lindell rewards plant managers, production supervisors, and workers with bonuses ranging from 1,000 to 10,000 if their factory meets its annual quality cost goals. Len Smith, manager of Lindells Boise plant, felt obligated to do everything he could to provide this increase to his employees. Accordingly, he has decided to take the following actions during the last quarter of the year to meet the plants budgeted quality cost targets: a. Decrease inspections of the process and final product by 50% and transfer inspectors temporarily to quality training programs. Len believes this move will increase the inspectors awareness of the importance of quality; also, decreasing inspection will produce significantly less downtime and less rework. By increasing the output and decreasing the costs of internal failure, the plant can meet the budgeted reductions for internal failure costs. Also, by showing an increase in the costs of quality training, the budgeted level for prevention costs can be met. b. Delay replacing and repairing defective products until the beginning of the following year. While this may increase customer dissatisfaction somewhat, Len believes that most customers expect some inconvenience. Besides, the policy of promptly dealing with customers who are dissatisfied could be reinstated in 3 months. In the meantime, the action would significantly reduce the costs of external failure, allowing the plant to meet its budgeted target. c. Cancel scheduled worker visits to customers plants. This program, which has been very well received by customers, enables Lindell workers to see just how the machinery they make is used by the customer and also gives them first-hand information on any remaining problems with the machinery. Workers who went on previous customer site visits came back enthusiastic and committed to Lindells quality program. Lindells quality program staff believes that these visits will reduce defects during the following year. Required: 1. Evaluate Lens ethical behavior. In this evaluation, consider his concern for his employees. Was he justified in taking the actions described? If not, what should he have done? 2. Assume that the company views Lens behavior as undesirable. What can the company do to discourage it? 3. Assume that Len is a CMA and a member of the IMA. Refer to the ethical code for management accountants in Chapter 1. Were any of these ethical standards violated?

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Chapter 19 Solutions

	2016	2017
Cell phones produced and shipped	2,500	10,000
Number of defective units shipped	125	400
Number of customer complaints	190	250
Units reworked before shipping	150	700
Manufacturing cycle time	13 days	14 days
Average customer-response time	28 days	26 days