Exercise 1: A company manufactures, sells and installs luxury shelves. She sees a drop in her sales linked to a drop in customer satisfaction, an increase in returns and a falling loyalty rate. To improve the situation, it would like to quantify the costs of non-quality as well as the costs that would be generated by a new organization integrating a more advanced quality approach. Over a year, she sells 100 shelves; each at a unit price of 8,000. The (variable) costs related to the manufacture, distribution and installation of the products are as follows: Material production cost: 2,000 Laber production cost: 1,000 Cost of quality control, at the end of production: 100 The fixed annual production costs are 200,000 It should be noted that following quality control, 5% of the products manufactured are identified as having to be completely scrapped and are therefore eliminated. Delivery cost: 6500 Installation cost: 1,000 3% of products delivered to customers contain defects. They are taken care of by the After-Sales Service (SAV). In these 3%, there are generally 2/3 of the products which are totally replaced and 1/3 of the products which are repaired. In the case of a replacement products, the products are completely re-manufactured, re-delivered and re-installed. In the case of a repair, the products are not re-manufactured but are reworked in the workshop for an additional cost of 1,000, not including a new delivery and installation. 1. How many products must be produced to sell the 100 shelves (rounded up to the nearest whole number)? 2. Of these products, how many products are produced twice, how many products are repaired, how many products are delivered/installed twice? 3. What is the cost of non-quality, a. First (Method 1) by comparing the income statement without quality problems (but with quality control) with the income statement with quality problems? b. Then (Method 2) by directly calculating the different types of non-quality costs? 4. Are there any non-quality costs that are not considered above? The company plans to develop a quality approach with quality control at each stage of the manufacturing process. This would make it possible to reduce the scrap rate to 2% and to no longer deliver products with poor workmanship. This would require an investment in equipment of 120,000 (usable over 5 years) as well as staff training at an annual cost of 4,000. 5. Is the investment in this quality approach desirable? Comment on this decision from an economic point of view but also taking other factors into consideration. Exercise 2- The ELECTRO company produces electronic control devices. She installs them at client sites and makes sure everything is running smoothly. You have the following information: Production service Installation service Annual capacity 400 units 300 units Actual production and 300 units 300 units installations Annual production is limited to 300 devices because the installation department cannot install more. The sale price of the installed devices is 40,000. Their unit material cost, considered as a variable cost, is 12,000. All other costs are fixed. These fixed costs are 60,000 for the production department and 30,000 for the installation department. The following questions are independent. Remember to justify your answers. Work to do 1. ELECTRO engineers have found a way to reduce manufacturing time. The new method has an additional cost of 40 per device produced and would make it possible to manufacture 30 more devices per year. Should ELECTRO apply this method? (1.5 pts) 2. The ELECTRO design office proposed to change some raw materials, which would increase the cost of direct materials by 2,000 per device. This change would allow ELECTRO to install 330 devices per year. If ELECTRO makes this change, it must apply it to all of its production. Should ELECTRO adopt the new materials? (1.5 pts) 3. New equipment is available which would allow ELECTRO to install 4 more devices per year. The total cost of installation operations would increase by 100,000 per year. Should ELECTRO use the new equipment? (1.5 pts) 4. ELECTRO is studying how to encourage its workers to increase their hourly output (in number of devices). One proposal is to pay a performance bonus to workers in the production and installation departments. Do you think this is a good idea? Why 2 (1.5 pts) Exercise 1: A company manufactures, sells and installs luxury shelves. She sees a drop in her sales linked to a drop in customer satisfaction, an increase in returns and a falling loyalty rate. To improve the situation, it would like to quantify the costs of non-quality as well as the costs that would be generated by a new organization integrating a more advanced quality approach. Over a year, she sells 100 shelves; each at a unit price of 8,000. The (variable) costs related to the manufacture, distribution and installation of the products are as follows: Material production cost: 2,000 Laber production cost: 1,000 Cost of quality control, at the end of production: 100 The fixed annual production costs are 200,000 It should be noted that following quality control, 5% of the products manufactured are identified as having to be completely scrapped and are therefore eliminated. Delivery cost: 6500 Installation cost: 1,000 3% of products delivered to customers contain defects. They are taken care of by the After-Sales Service (SAV). In these 3%, there are generally 2/3 of the products which are totally replaced and 1/3 of the products which are repaired. In the case of a replacement products, the products are completely re-manufactured, re-delivered and re-installed. In the case of a repair, the products are not re-manufactured but are reworked in the workshop for an additional cost of 1,000, not including a new delivery and installation. 1. How many products must be produced to sell the 100 shelves (rounded up to the nearest whole number)? 2. Of these products, how many products are produced twice, how many products are repaired, how many products are delivered/installed twice? 3. What is the cost of non-quality, a. First (Method 1) by comparing the income statement without quality problems (but with quality control) with the income statement with quality problems? b. Then (Method 2) by directly calculating the different types of non-quality costs? 4. Are there any non-quality costs that are not considered above? The company plans to develop a quality approach with quality control at each stage of the manufacturing process. This would make it possible to reduce the scrap rate to 2% and to no longer deliver products with poor workmanship. This would require an investment in equipment of 120,000 (usable over 5 years) as well as staff training at an annual cost of 4,000. 5. Is the investment in this quality approach desirable? Comment on this decision from an economic point of view but also taking other factors into consideration. Exercise 2- The ELECTRO company produces electronic control devices. She installs them at client sites and makes sure everything is running smoothly. You have the following information: Production service Installation service Annual capacity 400 units 300 units Actual production and 300 units 300 units installations Annual production is limited to 300 devices because the installation department cannot install more. The sale price of the installed devices is 40,000. Their unit material cost, considered as a variable cost, is 12,000. All other costs are fixed. These fixed costs are 60,000 for the production department and 30,000 for the installation department. The following questions are independent. Remember to justify your answers. Work to do 1. ELECTRO engineers have found a way to reduce manufacturing time. The new method has an additional cost of 40 per device produced and would make it possible to manufacture 30 more devices per year. Should ELECTRO apply this method? (1.5 pts) 2. The ELECTRO design office proposed to change some raw materials, which would increase the cost of direct materials by 2,000 per device. This change would allow ELECTRO to install 330 devices per year. If ELECTRO makes this change, it must apply it to all of its production. Should ELECTRO adopt the new materials? (1.5 pts) 3. New equipment is available which would allow ELECTRO to install 4 more devices per year. The total cost of installation operations would increase by 100,000 per year. Should ELECTRO use the new equipment? (1.5 pts) 4. ELECTRO is studying how to encourage its workers to increase their hourly output (in number of devices). One proposal is to pay a performance bonus to workers in the production and installation departments. Do you think this is a good idea? Why 2 (1.5 pts)
