BEC 6

Question 1

Quality control program, internal failure costs

Answer 1

These are incurred because nonconforming products and services are detected prior to being shipped to customers.

Examples: rework, scrap, reinspection, and retesting

Question 2

Cost of quality includes conformance costs and nonconformance costs

Answer 2

Conformance costs: costs of prevention and appraisal activities before product shipment

Nonconformance costs: the costs of internal and external failures that require either return of the product or rework of the product.

Question 3

Appraisal costs

Answer 3

Appraisal costs would detect individual products that do not conform to specifications. Examples include

• statistical quality checks
• inspections
• testing
• maintenance of lab

Question 4

Prevention costs

Answer 4

• redesign of processes
• training
• preventive maintenance
• supplier education expense

Question 5

Total Quality Management (TQM)

Answer 5

TQM represents an organizational commitment to customer-focused performance that emphasizes both quality and continuous improvement.

TQM focuses on:
customer needs,
continuous improvement,
quality circles

Question 6

Kaizen

Answer 6

Kaizen, or continuous improvement, occurs at the manufacturing stage when the ongoing search for cost reductions takes the form of analysis of production processes to ensure that resources uses stay within target costs.

Question 7

Theory of constraints

Answer 7

The theory of constraints says that organizations are impeded from achieving objectives by the existence of one or more constraints.

Organizations or projects must be operated in a manner that either works around or leverages the constraint.

Question 8

Lean manufacturing

Answer 8

Lean manufacturing supports the use of only those resources required to meet the requirements of customers.

Question 9

Institute of Internal Auditors (IIA)

Answer 9

The IIA defines internal auditing as an independent objective assurance and consulting activity designed to add value and improve an organization’s operations.

Question 10

Risk averse

Answer 10

Risk averse behavior describes managers who demand more return on an investment as risk increases. These managers expect to be compensated for increased risk.

Question 11

Risk indifferent

Answer 11

Risk indifferent behavior describes a manager who is neutral with regard to the return associated with a particular investment.

Typically, the amount of a risk free rate of return associated with an investment of a given amount compared to a higher return associated with higher risk version as having equal value.

Question 12

Risk seeking

Answer 12

Risk seeking behavior describes managers who seek reduced return for higher risk

Question 13

DUNS mnemonic

Answer 13

The broad categories of risk

D-Diversifiable
U-Unsystematic (non-market/firm-specific)
N-Non-diversifiable
S-Systematic (market)

Question 14

Foreign Currency chart

Answer 14

Foreign Currency/ Domestic Currency/ Net inflows/Net outflows

Depreciation/ Appreciation/ Loss / Gain
Appreciation/ Depreciation/ Gain/ Loss

Question 15

PEG ratio

Answer 15

The ratio of the P/E ratio (price/earnings) to the anticipated growth rate

PEG= (P/ E) / (G X 100)

P=price
E=earnings
G=growth rate

Question 16

Perpetuities-Zero Growth rate

Answer 16

P= D/R

P=Price
D= Dividend
R=Required return

Question 17

Constant (Gordon) Growth Dividend Discount Model

Answer 17

P= D_1/ R-G

P=Current price
D_1= Dividend one year after period (or D_0X(1+G))
R= required rate
G=(Sustainable) growth rate

Question 18

Shared services, outsourcing, and offshore operations

Answer 18

1) shared services: seeking out redundant services, combining them, and then sharing those services within a group or organization
2) outsourcing: contracting of services to an external provider
3) offshore operations: relate to outsourcing of services or business functions to an external party in a different country.