Chapt 16 Preformance Measurment and Process Management

Question 1

Decentralized firms can delegate authority and yet retain control and monitor managers’ performance by structuring the organization into responsibility centers. Which one of the following organizational segments is most like an independent business?

Answer 1

Investment center.
This answer is correct.
An investment center is the organizational type most like an independent business because it is responsible for its own revenues, costs incurred, and capital invested. The other types of centers do not incorporate all three elements.

Question 2

What is gap analysis in TQM?

Answer 2

This answer is correct.
The “gap” is the difference between best practices and the firm’s practices. TQM examines (benchmarks) the best in the industry and imitates them. The analysis includes establishing a database for developing a strategic quality improvement plan.

Question 3

A student aircraft mechanic scored 90% on her midterm exam on electronic systems, but her employer wanted a perfect score on every exam, stating, “Nothing less than perfection works in aviation.” Because the mechanic is required to make a test flight in every airplane she repairs, how would the 10% error rate be classified in a cost of quality analysis?

Answer 3

Nonconformance – internal.
This answer is correct.
Because the mechanic must fly in every aircraft she repairs, the cost of an in-flight failure of an electrical system could be serious. Thus, the 10% error rate is nonconformance (failure of the system) and internal. The mechanic could incur personal consequences from failure of the electrical system

Question 4

Fact Pattern: The management and employees of We Move You, a large household goods moving company, decided to adopt total quality management (TQM) and continuous improvement (CI). They believed that, if their company became nationally known as adhering to TQM and CI, one result would be an increase in the company’s profits and market share.
Quality is achieved more economically if We Move You focuses on

Answer 4

Prevention costs.
This answer is correct.
Prevention attempts to avoid defective output. Prevention costs include preventive maintenance, employee training, review of equipment design, and evaluation of suppliers. Prevention is less costly than detection and correction of defective output.

Question 5

Which measures would be useful in evaluating the performance of a manufacturing system?
Throughput time
Total setup time for machines/total production time
Number of rework units/total number of units completed

Answer 5

I, II, and III.
This answer is correct.
Throughput time is the average amount of time required to convert raw materials into finished goods ready to be shipped. Total setup time as a percentage of total production time provides valuable information for scheduling. The number of rework items as a percentage of total number of units completed provides efficiency and quality control data. These are all important factors in evaluating the performance of a manufacturing system.

Question 6

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

Answer 6

Greater contribution margin per hour of manufacturing capacity.
This answer is correct.
Fixed costs do not vary in the short run. Consequently, the appropriate decision criterion considers revenues and variable costs only, for example, contribution margin per hour of manufacturing capacity (contribution margin = sales revenue – variable costs).

Question 7

Residual income is a better measure for performance evaluation of an investment center manager than return on investment because

Answer 7

Desirable investment decisions will not be neglected by high return divisions.
This answer is correct.
A disadvantage of ROI is potential rejection of projects that decrease ROI despite increasing shareholder value. Residual income often is preferable because a firm ultimately is most interested in the total monetary amount of an investment’s return.

Question 8

System flexibility, elimination of waste, and elimination of disruptions are characteristic goals of which business process?

Answer 8

Lean operation.