Quality Management Problem Set

1. Backwoods American, Inc. produces expensive water-repellant, down-lined parkas. The

company has implemented a six-sigma/TQM program and the following are quality-
related accounting data for five-years.

YEAR
Y1 Y2 Y3 Y4 Y5
Quality Costs (000s)
Prevention $ 3.2 10.7 28.3 42.6 50.0
Appraisal 26.3 29.2 30.6 24.1 19.6
Internal failure 39.1 51.3 48.4 35.9 32.1
External failure 118.6 110.5 105.2 91.3 65.2
Accounting Measures (000s)
Sales $ 2700.6 2690.1 2705.3 2810.2 2880.7
Manufacturing cost 420.9 423,4 424.7 436.1 435.5

a. Compute the company's total failure costs as a percentage of total quality costs for
each of the five years. Does there appear to be a trend to this result? If so,
speculate on what might have caused the trend.

b. Compute prevention costs and appraisal costs, each as a percentage of total

quality costs, during each of the five years. Speculate on what the company's
quality strategy appears to be.

c. Compute quality-sales indices and quality-manufacturing cost indices for each of

the five years. Is it possible to assess the effectiveness of the company's quality
management program from these index values?

Adapted from Operations Management by Russell & Taylor.

2. The Colonial House Furniture Company manufactures two-drawer oak file cabinets that
are sold unassembled through catalogs. The company initiates production of 130 cabinet
packages each week. The percentage of good quality cabinets averages 82 percent per
week, and the percentage of poor quality cabinets that can be reworked is 60 percent.

a. Determine the weekly product yield of file cabinets.

b. If the company desires a product yield of 125 units per week, what should the
percentage of good quality cabinets be?
c. If the direct manufacturing cost for cabinets is $27 and the rework cost is $8,
compute the manufacturing cost per good product.
d. Determine the manufacturing cost per product if the percentage of good-quality
file cabinets is increased from 82 percent to 90 percent.
3. The total processing cost for producing the X-Pacer running shoes is $18. The Omega
Shoe Company produces 650 pairs of the shoes daily. The average rate of non-defective
shoes is 90 percent. One-quarter of the defective shoes can be reworked at a cost of
$3.75.

a. Compute the quality-productivity ratio (QPR).

b. Compute the QPR if the production rate is increased to 800 pairs of shoes per day.
c. Compute the QPR if the processing cost is reduced to $16.50 and the rework cost
to $3.20.
d. Compute the QPR if the product yield is increased to 93 percent good quality.

Source: Production and Operations Management, by Russell & Taylor, Prentice-Hall.

4. The GR8 House Furniture Company manufactures four-drawer oak filing cabinets in six
stages. In the first stage, the boards forming the walls of the cabinet are cut; in the
second stage the front drawer panels are wood worked; in the third stage the boards are
sanded and finished; in the fourth stage the boards are cleaned, stained, and painted with
a clear finish; in the fifth stage the hardware for pulls, runners, and fittings is installed;
and in the final stage the cabinets are assembled. Inspection occurs at each stage of the
process, and the average percentages of good-quality units are as follows:

Stage 1 2 3 4 5 6
Average % Good Quality 87 91 94 93 93 96

The cabinets are produced in weekly production runs with a product input for 300 units.

a. Determine the weekly product yield of good-quality cabinets.

b. What would weekly product input have to be in order to achieve a final weekly
product yield of 300 cabinets?
c. The Company has investigated the manufacturing process to identify potential
improvements that would improve quality. The company has identified four
alternatives, each costing $15,000, as shown below. Which alternative would
result in the greatest increase in product yield?

Alternative Quality Improvement

1 Stage1: 93%
2 Stage 2: 96%, Stage 4: 97%
3 Stage 5: 97%, Stage 6: 98%
4 Stage 2: 97%

Source: Production and Operations Management, by Russell & Taylor, Prentice-Hall.

5. A manufacturer estimates that the proportion of nonconforming items in one process is
3.5 percent. The estimated cost of inspecting each item is $0.50; while the cost of
replacing a nonconforming item after it leaves the production area is $25. What is the
best economic inspection decision?

Source: Operations Management, by Collier & Evans, Thompson.