ISCOM/305:

1. Tried and True Clothing has opened four new stores in college towns across the state. Data on monthly sales volume and labor hours are given below. Which store location has the highest labor productivity?
Store Annandale Blacksburg Charlottesville Danville
Sales volume $40,000 $12,000 $60,000 $25,000
Labor hours 250 60 500 200

1 2. Tried and True’s accountant (from Problem 1-1) suggests that monthly rent and hourly wage rate also be factored into the productivity calculations. Annandale pays the highest average wage at $6.75 an hour. Blacksburg pays $6.50 an hour, Charlottesville $6, and Danville $5.50. The cost to rent store space is $1800 a month in Annandale, $2000 a month in Blacksburg, $1200 a month in Charlottesville, and $800 a month in Danville.
1. Which store is most productive?
2. ried and True is not sure it can keep all four stores open. Based on multifactor productivity, which store would you close? What other factors should be considered?

2 1. Backwoods American, Inc., produces expensive water-repellent, down-lined parkas. The company implemented a total quality-management program in 2005. Following are quality-related accounting data that have been accumulated for the five-year period after the program’s start.
Year
2006 2007 2008 2009 2010
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 $2,700.6 2,690.1 2,705.3 2,310.2 2,880.7
Manufacturing cost 420.9 423.4 424.7 436.1 435.5
1. 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.
2. Compute prevention costs and appraisal costs, each as a percentage of total costs, during each of the five years. Speculate on what the company’s quality strategy appears to be.
3. Compute quality-sales indices and quality-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?
4. List several examples of each quality-related cost—that is, prevention, appraisal, and internal and external failure—that might result from the production of parkas.