BEC QM Flashcards
Quality of conformance
Refers to the degree to which a product meets its design specifications and/or customer expectations. This is goal of Total Quality Management (TQM)
Quality of design
Meeting or exceeding the needs and wants of customers. 2nd goal of TQM
Cost of quality:
- Prevention cost- cost to make sure job done right the 1st time (training, engineering, control activities)
- Appraisal cost- testing and inspection costs
- Internal failure cost- costs incurred when substandard products are produced but discovered before shipment (scrap, rework, spoilage)
- External failure cost- products do not meet requirements and have reached customer (recalls, warranty, returns and allowances)
Total cost of quality=sum of all of these
Increased cost of prevention and appraisal=
Decreased cost of failure, increase in quality of conformance.
Throughput time (manufacturing cycle time)
Total time required for an item to make it’s way through the manufacturing system.
Which of the following types of performance measures integrates financial performance, internal operations, learning and growth, and customer satisfaction?
Balanced scorecard
Financial performance measures for balanced scorecard:
Gross profit margin, sales growth, profitability per job or product, stock price, achievement of cash flow goals, and any of the standard financial ratios (inventory turnover, return on investment, current ratio, etc.)
Customer performance measures for balanced scorecard:
Market share, product returns as a percentage of sales, number of new customers, sales trends
Internal business process measures for balanced scorecard:
Percentage of production downtime, delivery cycle time, manufacturing cycle time/throughput, manufacturing cycle efficiency, standard cost variances, product defect rate, amount of scrap and rework
Learning, innovation and growth measures for balanced scorecard:
Percentage of employees with professional certifications, hours of training per employee, number of new products developed, employee turnover, number of customer requests for specific designers
How is contribution margin (CM) different from gross margin (GM)?
CM equals sales less variable costs; GM equals sales less cost of goods sold.
Delivery cycle time
Time between order and delivery
Manufacturing cycle efficiency
Time required for nonvalue-added activities/total manufacturing time
Why is cost avoidance a faster way to increase profits than to increase revenue?
Increasing revenue often results in at least some proportional cost increases.
Types of risk:
- Strategic- occurs as a consequence of the specific and overall action plans to achieve the organization’s mission, controlled with forcasting, optimizing operating leverage (fixed vs. variable costs) and cost control
- Operational-short-term in nature and involves daily implementation issues, mitigated with EE training, customer credit checks, quality control
- Market risk- large-scale economic events or natural disasters that, to some extent, influence all companies, systematic risk, controlled with insurance and assessments of exposure to economic downturns
- Financial risk- interest rate, foreign exchange (hedging)
Pure risk
Possibility of either breaking even or losing but never profiting (insurance). All other risk is speculative risk.
What is the objective of the demand flow approach?
To link process flows and manage them based on customer demand.
What tools does Six Sigma commonly use to achieve quality control?
Tools common to TQM (e.g., control charts). Six Sigma is very similar to total quality management (TQM) and uses TQM tools such as control charts, run charts, pareto histograms, and Isikawa (fish-bone) diagrams.
Jago Co. has two products that use the same manufacturing facilities and cannot be subcontracted. Each product has sufficient orders to utilize the entire manufacturing capacity.
For short-run profit maximization, Jago should manufacture the product with the
Greater contribution margin per hour of manufacturing capacity in the short run, in the long run, the firm should expand to take advantage of the market for its products.
Theory of constraints
Identifies strategies to maximize income when the organization is faced with bottleneck operations. A bottleneck operation occurs when the work to be performed exceeds the capacity of the production facilities. Over the short run, revenue is maximized by maximizing the contribution margin of the constrained resource. NOTE: this is not overall contribution margin but contribution margin of constrained resource.
Lean manufacturing traits:
- Small batches of a high variety of unique products
- Automated or otherwise sophisticated machinery (multi-use equipment)
- Highly skilled labor (usually cross-trained).
- Smaller # of suppliers with increased quality expected
Thus, lean production blends the features of craft (small number of unique products) and mass (large # of standardized products) production processes.
Demand flow approach (demand flow technology, DFT)
Uses mathematical methods to link materials, time, and resources based on continuous flow planning. The objective is to link process flows and manage those flows based on customer demand.
Contribution margin per unit of constraining resource=
CM per unit x Amount of constraining resource per unit
Example: $1 CM x 72 lbs per hour can be processed vs. $.5 CM x 100 lbs per hour can be processed
In a process cost system, the application of factory overhead usually would be recorded as an increase in
Work-in-process inventory control. Journal entries to record the manufacturing cost are similar for job-order and process costing. When overhead is applied, it is debited to work in process.