Financial and Non-Financial Measures of Performance: Quality Management/Balance Scorecard/Benchmarking Flashcards
Quality engineering, quality training, quality circles, quality data gathering analysis, etc. are all examples of what type of cost?
Prevention cost. The cost of prevention is the cost of any quality activity designed to help do the job right the first time.
Testing and inspection of incoming materials and in-process goods, maintenance, depreciation, and supplies testing are all examples of what type of costs?
Appraisal cost. The cost of quality control including testing and inspection. It involves any activity designed to appraise, test, or check for defective products.
Scrap, spoilage, rework, reinspection, retesting, breakdown maintenance, testing and disposal of products are all examples of what type of costs?
Internal failure cost. The costs incurred when substandard products are produced but discovered BEFORE shipment to the customer.
Cost of field servicing and handling/responding to customer complaints, warranty repairs, and replacements, product recalls, defective product liabilities, statistical quality procedures, returns and allowance, and lost sales are all examples of what types of costs?
External failure costs. The cost incurred for products that do not meet requirements of the customer and have reached the customer. Costs AFTER items shipped.
What is a key difference between internal and external failure costs?
An internal failure cost is incurred when a product that does not conform to its design specifications is detected BEFORE shipment to customers. Costs incurred AFTER items have been shipped are external failure costs.
Why is rework an example of an internal failure cost?
The cost to rework items that do not meet design specifications is incurred BEFORE the items are shipped, and therefore, qualify as internal failure costs.
Responding to customer complaints is an example of an external failure, why?
These occur after product has been shipped
Why are statistical quality control procedures both preventative and appraisal costs?
Statistical quality control programs are designed to distinguish between in-control and out-of-control operations, and thus, to signal when to investigate the operation, determine the problem, and solve the problem. These programs are partially preventive in nature because they often provide signals of developing problems that have not yet reached the point where remedial action is cost-effective. These programs also play an appraisal role in identifying units that fail to conform to design specifications.
This methodology is the only well-recognized quality program used to minimize defects while reducing costs, what is it?
Six Sigma (Standard deviations)
This type of costing uses direct materials, direct labor, and only variable manufacturing costs for internal purposes on the income statement and treats fixed manufacturing costs as product costs, variable costing does not specifically address the issue of defective products.
Variable costing (Also known as direct costing)
This type of analysis is a common tool that is often defined as pro forma or what-if analysis, but it does not specifically address the issue of defective products.
Sensitivity analysis
This inventory system lowers the level of inventory maintained by the firm. Rather than maintain a large amount of inventory as a buffer for stockouts, this system purchases inventory only when necessary. The inventory is to arrive just in time for its use in production or sales.
Just in time inventory system (JIS)
What is the formula for inventory turnover?
COGS/Average Inventory (Beg+End/2)
What is the formula for inventory percentage?
Ending inventory balance/total assets
A JIT system lowers __________ and increases __________. (Answers: Inventory turnover and inventory percentage)
- Lowers inventory %
2. Increases inventory turnover. Meaning you’re able to move inventory in and out quickly.
Cost of inspecting products on the production line by quality inspectors. This is an example of what type of cost?
Appraisal cost
Labor cost of product designers whose task is to design components that will not break under extreme temperature conditions. This is an example of what type of cost?
Prevention cost
Cost of reworking defective parts detected by the quality assurance group. This is what type of cost?
Internal failure cost
Costs of parts return by customers. This is what type of cost?
External failure cost
Spoilage is an example of what type of cost?
Internal failure cost
Costs incurred in detecting individual units of product that do not conform to specifications are? These costs are associated with quality control and include testing and inspection.
Appraisal costs
Liability claims are examples of what costs?
External costs
Typical product-costing systems synchronize the recording of accounting-system entries with the physical sequence of purchases and production. The alternative (which is normally used in high-speed automated environments) of delaying journal entries until after the physical sequences have occurred is referred to as?
Backflush costing
Direct or variable costing is a method of inventory costing in which all variable product costs are treated as ________ costs and fixed manufacturing overhead is treated as a ______ cost.
- Inventoriable
2. Period
This costing system is usually applied to batches of similar products where each batch of product is a variation of a single design and requires a sequence of selected operations/activities. This costing system would track work in process inventory.
Operating costing
This type of costing system is a sequential costing system in which the cost of a product/service is obtained by assigning costs to masses of similar units as they are produced and then computing unit costs on an average basis.
Process costing
What is the best method to use under conditions of uncertainty?
Expected value (EV) also known as probability analysis.
Probabilities are used to calculate the expected value of each action. The expected value of an action is the weighted-average of the payoffs for that action, where the weights are the probabilities of the various mutually exclusive events that may occur.
This type of analysis is used to predict profits at all levels of production in the relevant range.
Cost-volume profit analysis
This evaluation/technique is used to estimate, schedule, and manage a network of interdependent project activities. It is useful for managing large-scale, complex projects.
PERT (Program evaluation and review technique)
This method is a graphical approach to computing the relationship between two variables.
Scattergraph method
Under JIT inventory system, what would be the effect on lot sizes and relevant costs? (Increase or decrease) How would an increase in fixed costs impact these?
- JIT system would decrease lot sizes and decrease relevant costs. Since inventory levels would decrease with JIT, relevant costs would also drop.
- Fixed facility and administrative costs are irrelevant as fixed costs would remain the same regardless of changes for JIT.
Given the circumstances below, what would have been the amount of increase in company’s contribution margin had a company implemented a quality assurance program? (CM=Sales-VC)
# of units sold = 100,000
Selling price = $50
Variable cost = $20
# of defective units (need rework) = 1,200
Cost per unit to rework (CPU) = $12
New Selling Price (Rework) = $45
What formula would help you calculate this problem?
Cost per unit + (Old selling price - new selling price) x # of units rework/defective
12 + (50-45) x 1,200 = $20,400
What are the four perspectives of balance scorecard?
- Financial
- Customer
- Internal business process
- Learning and growth
This perspective evaluates the profitability of the organization’s strategy.
Financial
This perspective evaluates the organization’s success in targeted customer and market segments.
Customer
This perspective focuses on the internal operations that create value. This includes new product development, operations, and after-the-sale customer service.
Internal business process
This perspective identifies the internal characteristics that the company must possess in order to be successful in the other areas. It includes areas such as employee skill levels, information system capabilities, and employee morale and empowerment.
Learning and growth
This technique/method would be implemented by a company to compare and contrast its financial information to published information reflecting optimal amounts.
Benchmarking
Benchmarking provides a relevant comparison when trying to achieve the optimal outcome by comparing to others.
This is the process of comparing business processes and performance metrics to industry best practices from other companies.
Benchmarking
Budgeting and forecasting are based on ______ conditions and not optimal amounts.
Future
What performance measure integrates financial performance, internal operations, learning and growth, and customer satisfaction.
Balance Scorecard
______ time is the total time required for an item to make its way through the manufacturing system.
Throughput time
How do you calculate the ratio of setup time to total production time? (Formula) This reflects the adaptability of the system to required changes in production capability. If this ratio is excessive, the firm is unable to alter its product to meet changing customer demand.
Total setup time for machines/Total production time
How do you calculate the ratio of rework to total units is a measure of quality? A lower ratio indicates higher quality and less interruption to the production process.
Number of rework units/Total number of unites completed
Which of the following measures would be useful in evaluating the performance of a manufacturing system?
- throughput time
- total setup time for machines/total production time
- # of rework units/total # of units completed
All of the above
What is the primary purpose of balance scorecard?
Measure performance
Employee training would fall under which perspective?
Learning and growth
Employee satisfaction and retention and other performance measures relating to employees, infrastructure, teaming, and capabilities would fall under which perspective? Also includes hours of training employees.
Learning and growth
A key action program required to achieve strategic objectives is a ______ initiative in the balanced scorecard framework.
Strategy
Customer retention and success in targeted market segments relates to what perspective?
Customer
_____ time measures the time it takes to produce a product.
Cycle time
Cycle time and # of defective units would fall under which business perspective?
Internal business processes
A _______ map diagrams of the cause-and-effect relationships between strategic objectives.
Strategy map
A ______ chart is a statistical plot that helps to detect deviations before they generate defects.
Control chart
A _____ diagram indicates how frequently a type of defect may occur.
Pareto diagram
A _____ map is a statement of what the strategy must achieve and what is critical to its success.
Strategy map
This diagram identifies causes of failures/defects and can be used to identify the reasons why a process goes out of control.
Cause-and-effect diagram
Review four types of benchmarking.
- Internal benchmarking - Within firm
- Generic benchmarking - Best practices
- Competitor benchmarking - Competitors
- Functional benchmarking - Same industry
This theory is a method to maximize operating income when faced with some bottleneck operations.
Theory of constraints
This is an operational strategy focused on achieving the shortest possible cycle time by eliminating waste.
Lean manufacturing
This is a quality tool for continuous improvement?
Kaizen (Japanese art)
Strategic objectives, targets, and strategy initiatives are all components of what?
Balance scorecard
A statement of what the strategy must achieve and what is critical to its success is the definition of ______ objective in balance scorecard framework.
Strategy
When a company has a lot of costs spent on product recalls due to bad quality. Which type of costs should a company incur the most of in order to reduce these product defects.
Prevention costs. Most cost effective approach.