1. (TCO 11) An advantage of financial cost of quality measures is that they (Points : 5) are often easy to quantify and understand. provide immediate short-run feedback on whether quality improvement efforts have, in fact, succeeded in improving quality. direct attention to physical processes and therefore focus attentions on the precise problem areas needing improvement. provide a single, summary measure of quality performance.

Question 5. 5. (TCO 11) Regal Products has a budget of $900,000 in 20X3 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 that 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 : 5)

$500,000 decrease $750,000 decrease $33,750 decrease $67,500 decrease

Question 6. 6. (TCO 12) Which of the following is NOT a major feature of a just-in-time production system? (Points : 5)

Workers are trained to be multi-skilled. Emphasis is placed on increasing setup time and manufacturing lead time. Production is organized in manufacturing cells. Total quality management is aggressively pursued.

Question 7. 7. (TCO 12) The costs associated with storage are an example of which cost category? (Points : 5)

Carrying costs Ordering costs Quality costs Labor costs

Question 8. 8. (TCO 12) Which of the following statements about the economic-order-quantity decision model is FALSE? (Points : 5)

It assumes ordering costs and carrying costs are relevant. It assumes stockout costs are irrelevant if no stockouts occur. It assumes purchasing costs are relevant when the cost per unit changes due to the quantity ordered. It assumes quality costs are irrelevant if quality is unaffected by the number of units purchased.

Question 10. 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 (Points : 5)

$1,800. $2,000. $1,600. $1,500.