Assignment 1: Discussion—Cost of Quality

Using this case study, take the role of the production manager and prepare a report for the board that either recommends the proposed changes or does not recommend the changes. Support your position with details from the case and also from information from the text or other outside references.

Make sure your original answer explains the following in your own words:

  • Cost of Quality
  • Total Quality Management (TQM)
  • Statistical Process Control (SPC)
  • Six Sigma
  • Relevant Costs
  • Sunk Costs
  • Cost Volume Profit (CVP)

Submission Details:

By Saturday, July 29, 2017, post your response to the Discussion Area. Through Wednesday, August 2, 2017, read and respond to at least two other classmates’ posts on at least two different days of the week.

Write your initial response in 300–500 words. Your response should be thorough and address all components of the discussion question in detail, include citations of all sources, where needed, according to the APA Style, and demonstrate accurate spelling, grammar, and punctuation.

Do the following when responding to your peers:

  • Read your peers’ answers.
  • Provide substantive comments to at least 2 peers’ posts on 2 different daysby
    • contributing new, relevant information from course readings, Web sites, or other sources;
    • building on the remarks or questions of others; or
    • sharing practical examples of key concepts from your professional or personal experiences
  • Respond to feedback on your posting and provide feedback to other students on their ideas.
  • Note: more posts on more days will support your discussion grade.
  • Make sure your writing
    • is clear, concise, and organized;
    • demonstrates ethical scholarship in accurate representation and attribution of sources; and
    • displays accurate spelling, grammar, and punctuation.

Grading Criteria

Assignment Components Max Points
Initial response was:

  • Insightful, original, accurate, and timely.
  • Substantive and demonstrated advanced understanding of concepts.
  • Compiled/synthesized theories and concepts drawn from a variety of sources to support statements and conclusions.
25
Discussion Response and Participation:

  • Responded to a minimum of two peers on two different days in a timely manner.
  • Offered points of view supported by research.
  • Asked challenging questions that promoted discussion.
  • Drew relationships between one or more points in the discussion.
15
Writing:

  • Wrote in a clear, concise, formal, and organized manner.
  • Responses were error free.
  • Information from sources, where applicable, was paraphrased appropriately and accurately cited.
10
Total: 50
Below is the case study for the above
Just in case you are having trouble bringing up the case, here is the only case in Chapter 11.

Case study question: Swift Airlines Swift Airlines has a daily return flight from London to Nice. The aircraft for the flight has a capacity of 120 passengers. Swift sells its tickets at a range of prices. Its business plan works on the basis of the following mix of ticket prices for each day’s flight:

 

Business 30 @ £300 £9,000
Economy regular 40 @ £200 £8,000
Advance purchase 20 @ £120 £2,400
7-day-purchase 20 @ £65 £1,300
Stand-by 10 @ £30 £300
Revenue 120 £21,000

 

Swift’s head office accounting department has calculated its costs as follows:

 

Cost per passenger (to cover additional fuel, insurance, baggage handling etc.) assuming full load £25 per passenger

Flight costs (to cover aircraft lease, flight and cabin crew costs, airport and landing charges etc.) £3,000 (120 @ £25) £7,500 per flight

Route costs (to cover the support needed for each destination) £2,000 (based on ½ of the daily cost of £4,000 (balance charged to return flight)) Business overhead £3,000 (allocation of head office overhead)

 

Total £15,500

 

This results in a budgeted profit of £5,500 per flight, assuming that all seats are sold at the budgeted price. The head office accountant for European routes has advised the route manager for Nice that while the Nice–London inbound leg is breaking even, losses are being made on the London–Nice outbound leg. If profits cannot be generated, the route may need to be closed, with the aircraft and crew being assigned to another route. The route manager for Nice has extracted recent sales figures, a typical flight having the following sales mix:

 

% of tickets sold Business 60 18 @ £300 £5,400
Economy regular 70 28 @ £200 £5,600
Advance purchase 80 16 @ £120 £1,920
7-day purchase 75 15 @ £65 £975
Stand-by 100 10 @ £30 £300
Revenue 87 £14,195

 

The route manager has calculated a loss on each outbound flight of £1,305. She believes that there is a market for 48-hour ticket purchases if a new fare of £40 was introduced, as this would be £5 less than the price charged by a competitor for the same ticket. She estimates that she could sell 15 seats per flight on this basis. This would not affect either the 7-day purchase, which is used by business travelers, or stand-by fares, which are usually oversubscribed. The additional revenue of £600 (15 @ £40) would cover almost half the loss. The route manager has prepared a report for her manager asking that the new fare be approved and allowing her three months to prove that the new tickets could be sold. Comment on the route manager’s proposal. Case studies provide the reader with the opportunity to interpret and analyze financial information produced by an accountant for use by non-accounting managers in decision-making. There is a suggested answer for the case in Part IV, although the nature of case studies is that there is rarely a single correct answer, as different approaches to the problem can highlight different aspects of the case and a range of possible approaches are possible.

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