Managerial accounting and introduction to concepts methods and user 11e by maher chapter 04

Japan: Deming Prize US: Baldrige Quality Award International standards measure quality ISO 9000: standards for quality management ISO 14000: standards for communicating financial i

Strategic Management of Costs, Quality, and

Florida Institute of Technology

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This chapter illustrates the significance of

quality

Prizes recognize improvements in quality.

Japan: Deming Prize

US: Baldrige Quality Award

International standards measure quality

ISO 9000: standards for quality management

ISO 14000: standards for communicating financial

impact of environmental issues

TRADITIONAL VIEW

The traditional view of quality assumes that

improving quality always requires increasing

costs.

Firms can reduce total costs by

Producing lower-quality goods

Tolerating some level of defective goods

QUALITY-BASED VIEW

The quality-based view holds that firms should

always attempt to improve quality

Attempts to improve quality will succeed without

limit

Firms

Should not wait for inspections of finished products to

reveal defects

Must establish quality goals and procedures

Aim for zero defects

High quality pays for itself

TRADITIONAL VS

QUALITY-BASED VIEW

Traditional View Quality-based View

Quality increases costs Quality decreases costs

Goods require inspection Defect-free goods require no

inspection

Workers cause most defects System causes most defects

Require standards, quotas, goals Eliminate standards, quotas, goals

Buy from lowest cost supplier Buy on basis of lowest total cost

Focus on short-run profits Focus on long-run profits E X

Customers will buy product that provides them with

preferred mix of quality, service, price

VALUE CHAIN

Research and Development

Design Production

Marketing

Distribution Customer Service

Steve’s Sushi makes sushi for delivery only

Steve has concerns about quality and so

he considers various ways he can

ensure/improve quality He throws away

any prepared sushi that does not meet

strict quality standards A quality report

follows.

Continued

Cost of lost business 17,000 1.70

Cost Categories Costs of Quality % of Sales

What actions can Steve

forego if he

can’t do everything?

What actions can Steve

forego if he can’t do everything?

EXHIBIT 4.5

Generally there is

a long-run decline

in total costs of quality

Generally there is

a long-run decline

in total costs of quality

Diagnostic signal suggests cause of

problem and possible solutions

EXHIBIT 4.6

Control charts

distinguish between random variations and variations to investigate

Control charts

distinguish between random variations and variations to investigate

CAUSE and EFFECT: Definition

CAUSE and EFFECT : Definition

Is analysis that first defines the

effect and then identifies the

cause.

EXHIBIT 4.7

Pareto charts

illustrate graphically the problems or defects

Pareto charts

illustrate graphically the problems or defects

JUST-IN-TIME: Definition

Is a philosophy that seeks to

purchase/produce goods and/or

services just when the company

needs them.

Factors for success in JIT

Total quality

Smooth production flow

Purchasing quality materials

Well-trained, flexible workforce

Short customer-response times

Backlog of orders

IMPORTANCE OF TIME

Success in competitive markets demands

shorter new-product development time and

more rapid response to customers

Customer response time is: (1)

new-product development time and (2)

operational measures of time.

Success in competitive markets demands

shorter new-product development time and

more rapid response to customers

Customer response time is: (1)

new-product development time and (2)

operational measures of time.

customer.

Break-even time =

+ Time period from Project approval until Sales begin

LIMITATIONS: Break-even Time

 Break-even time

Ignores cash flows after break-even point

Does not consider strategic, nonfinancial reasons

for new product

Varies from one business to next, depending on

product life cycles and investment requirements

OPERATIONAL MEASURES

 Indicate

Speed

Reliability

 Customer response time

Delivery cycle time

Time from order to delivery

 On-time performance

Delivered as scheduled

vision and strategy.

EXHIBIT 4.9

Balanced scorecard can maximize profits and improve performance if used effectively

Balanced scorecard can maximize profits and improve performance if used effectively

TOTAL QUALITY MANAGEMENT (TQM)

TQM requires five changes to traditional

managerial accounting systems

System includes information to help solve

problems

Line employees collect information for feedback

Information should be available quickly

Information should be more detailed

Base rewards on quality, customer satisfaction