The Taguchi Quality Loss Function (QLF) demonstrates that as the quality measure of a product declines

 Verizon Manufacturing Company spent $400,000 in 2012 to inspect incoming components. Of the $400,000, $240,000 is fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes two components for each finished product. Internal failure costs average $80 per failed unit of finished goods. In 2012, five percent of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are one percent of units sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of quality (COQ), Verizon contracted Quality-is-Free Consultants, Inc. (QIFC) to study ways to improve product quality and to reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $60,000 annual cost for training and $150,000 for equipment

rental and maintenance. The new equipment will eliminate $40,000 of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 10 percent, and cut product failures by half. The company paid the consulting firm $100,000 in early January 2013 for the project. Verizon expects no changes in its operating level in the foreseeable future.

51. The $100,000 payment to the consulting firm for COQ reporting purposes is best classified as a(n):

A. Prevention cost.

B. Appraisal cost.

C. Internal failure cost.

D. External failure cost.

E. Administrative cost.

52. What is the current 2012 total Cost of Quality (COQ)?

A. $400,000.

B. $1,600,000.

C. $2,400,000.

D. $2,800,000.

E. $5,200,000.

53. What effect does the new equipment have on appraisal costs?

A. $10,000 increase.

B. $20,000 decrease.

C. $170,000 increase.

D. $220,000 increase.

E. No change.

54. How much are internal failure costs projected to change?

A. $20,000 decrease.

B. $45,000 decrease.

C. $80,000 decrease.

D. $160,000 decrease.

E. $320,000 decrease.

55. How much do you expect total external failure costs to change?

A. $10,000 increase.

B. $200,000 decrease.

C. $320,000 decrease.

D. $400,000 decrease.

E. $800,000 decrease.

56. What is the change in total quality cost projected for 2013?

A. $400,000 decrease.

B. $290,000 decrease.

C. $550,000 decrease.

D. $560,000 decrease.

E. $580,000 decrease.

Pandra Manufacturing specifies the quality characteristic of one of its popular products to be 0.500" ±0.020. An analysis of company records for the last two years suggests that the average cost for warranty repair or replacement is $125 per unit. The customer service manager believes that the product is likely to fail during the warranty period when the quality characteristic exceeds on either side of the target of 0.500, by the tolerance of 0.020.

57. What is the cost coefficient, k, in the Taguchi loss function for this company?

A. $125.

B. $6,250.

C. $15,625.

D. $312,500.

E. $781,250.

58. Using a Taguchi loss function for this company, what is the amount of the estimated loss when the actual quality characteristic, x, is 0.505?

A. $0.3906.

B. $7.8125.

C. $19.53125.

D. $125.000.

E. $1,562.50.

59. What is the amount of the estimated loss using a Taguchi loss function if the actual quality characteristic, x, is 0.510?

A. $7.8125.

B. $31.25.

C. $78.125.

D. $3,125.

E. $7,812.50.

60. Oslo Company's target quality characteristic, T, for one of its key components is set at 82. Using the Taguchi Loss Function the company has determined the cost coefficient, k, to be $6,000. What is the estimated loss, L(x), if the value of the quality characteristic, x, is 85?

A. $1,500.

B. $4,500.

C. $18,000.

D. $42,500.

E. $54,000.