Give two examples of appraisal costs.

Exhibit 19-1 of the text lists the following three examples of appraisal costs: inspection; online
product manufacturing and process inspection; and product testing.

19-5 Distinguish between internal failure costs and external failure costs.

An internal failure cost differs from an external failure cost on the basis of when the
nonconforming product is detected. Internal failure costs are costs incurred on a defective
product before a product is shipped to a customer, whereas external failure costs are costs
incurred on a defective product after a product is shipped to a customer.

19-6 Describe three methods that companies use to identify quality problems.

Three methods that companies use to identify quality problems are (a) a control chart, which is a
graph of a series of successive observations of a particular step, procedure, or operation taken at
regular intervals of time; (b) a Pareto diagram, which is a chart that indicates how frequently
each type of failure (defect) occurs, ordered from the most frequent to the least frequent; and (c)
a cause-and-effect diagram, which helps identify potential causes of defects using a diagram that
resembles the bone structure of a fish.

19-7 “Companies should focus on financial measures of quality because these are the only
measures of quality that can be linked to bottom-line performance.” Do you agree? Explain.

No. It is true that an important advantage of financial measures of quality is that they can be
linked to bottom-line performance, but nonfinancial measures, such as number of defects,
customer satisfaction, and employee satisfaction, have several advantages as well. They are
easier for employees to understand; they direct attention to physical processes that help managers
identify precise problem areas in need of improvement that will then improve the bottom line;
they provide short-run feedback on whether quality-improvement efforts are succeeding; and
they are useful indicators of long-run performance.