Planning, Control & Analysis

Question 1

Prevention Costs ….

Answer 1

Use high-quality materials
Provide employee training
Require routine preventative maintenance
Require supplier education/certifications

Question 2

Detection/Appraisal Costs ….

Answer 2

Inspection of raw materials, work-in-process (WIP), finished goods
Depreciation expense of testing equipment
Supervision of testing team

Question 3

Internal Failure Costs ….

Answer 3

Disposing of scrap due to wasted material
Reworking defective units
Re-inspecting and retesting after rework

Question 4

External Failure Costs ….

Answer 4

Warranty costs
Product liability and product recall costs
Lost future sales and damaged reputation
Lawsuits

Question 5

Conformance Costs ….

Answer 5

Prevention and detection/appraisal costs

Question 6

Nonconformance Costs ….

Answer 6

Internal and external failure costs

Question 7

Expected value ….

Answer 7

Question 8

Expected value example:

A company has determined that its sales to residential home builders tend to vary with changes in the prime interest rate. Sales this year will be $5 million. The following information is available:

What amount is the expected value of the company’s sales for the coming year’s budget?

A. $5,037,500
B. $5,150,000
C. $5,172,500
D. $5,337,500

Answer 8

A. $5,037,500

First determine the projected sales:

$5,000,000 is given
(20%) sales growth given

[$5,000,000 x (1 - 20%)] = $4,000,000

Question 9

Types of benchmarks ….

Answer 9

Internal, Competitive, Industry and Generic

Question 10

Balanced Scorecard ….

Answer 10

Financial, Customer, Learning and growth, and Internal business process