Quality Control and the Boeing 787

​Source: McCartney, Scott.​ "How to Inspect Every Piece of a Widebody​ Airplane." http://www.cetusnews.com/life/How-to-Inspect-Every-Piece-of-a-Widebody-Airplane.B1xPm2I4t-.html, posted

​8/30/2017.

Imagine​ you're buying a​ $270 million car.​ You'd want to kick the tires pretty hard.​ That's what airlines do with new airplanes. Delivering one widebody airplane is a big

deallong dash—each

plane has a list price roughly the cost of a​ high-rise hotel.

Carriers like American Airlines station their own engineers at Boeing factories to watch their flying machines get built and check parts as they arrive. Then they send flight​ attendants, mechanics and pilots for what are called shakedown inspections.

​"The rubber meets the road​ here," says an American​ manager, as he begins checking a brand new Boeing 787.​ "It's inspected and​ it's inspected and​ it's inspected. And yet we still find​ things." American is taking delivery of 57 new planes this year. Boeing does its own​ testing, but buyers do their own extra

inspectionlong dash—and

note an average of 140 items on a​ plane's punchlist.

Five flight​ attendants, a couple of mechanical experts and an American test pilot attack the​ 285-passenger plane. All the doors and panels are opened for inspection. Flight attendants shake each seat​ violently, grab the headrest and pull it up and jerk the cord on each entertainment controller. They test power​ ports, USB​ ports, audio jacks and the entertainment system. They open all tray​ tables, turn all lights on and off. They recline each seat with​ knee-knocking force. They flush all the​ toilets, blow fake smoke into smoke​ alarms, make sure all prerecorded emergency messages sound when required.

Inside the​ cockpit, an American test pilot flies the jet to its​ limits, making sure alarms sound when he increases air speed or slows the plane down to stall speed. He turns it sharply until​ "bank angle" warnings sound. Each engine gets shut down and restarted in the air. Every backup and emergency system is put into use to make sure it works.

Critical Thinking Questions

1. Why do airlines feel the need to make quality​ inspections?

A. The​ $270 million price tag.

B. Pilots like to check emergency systems.

C. Manufacturers sometimes miss errors.

D. All of the above.

2. Who participates in shakedown​ inspections?

A. Flight attendants only.

B. Boeing engineers.

C. Top management from the airline buying the plane.

D. Test pilots and other company representatives.

3. Flight attendants test the 787s

A. exterior paint.

B. ​seats, entertainment​ systems, and power parts.

C. air speed.

D. legroom.

4. Inspection on a commercial jet takes place

A. before delivery to the customer.

B. during the first scheduled flight.

C. before the contract is signed.

D. at the part​ supplier's shipping dock.

A randomized, double‑blind experiment studied whether magnetic fields applied over a painful area can reduce pain intensity. The subjects were 5050 volunteers with postpolio syndrome who reported muscular or arthritic pain. The pain level when pressing a painful area was graded subjectively on a scale from 00 to 1010 ; (where 00 is no pain, 1010 is maximum pain.)

Patients were randomly assigned to wear either a magnetic device or a placebo device over the painful area for 4545 minutes. A summary is given of the pain scores for this experiment, expressed as means ±± standard deviations.

(a) Is there good evidence that the magnetic device is better than a placebo equivalent at reducing pain? Let ?1μ1 and ?2μ2 be the mean change in pain for patients given the magnetic device or the placebo device, respectively. State the hypotheses for the appropriate test.

a. ?0:?1−?2=4.1 vs ??:?1−?2≠4.1H0:μ1−μ2=4.1 vs Ha:μ1−μ2≠4.1

b. ?0:?1≤?2 vs ??:?1>?2H0:μ1≤μ2 vs Ha:μ1>μ2

c. ?0:?1−?2=0 vs ??:?1−?2=4.1H0:μ1−μ2=0 vs Ha:μ1−μ2=4.1

d. ?0:?1=?2 vs ??:?1>?2H0:μ1=μ2 vs Ha:μ1>μ2

e. ?0:?1=?2 vs ??:?1≠?2H0:μ1=μ2 vs Ha:μ1≠μ2

f. ?0:?1−?2=4.1 vs ??:?1−?2>4.1H0:μ1−μ2=4.1 vs Ha:μ1−μ2>4.1

g. ?0:?1=?2 vs ??:?1<?2

Give the test statistic and the ?P‑value for the test.

a. ?=1.15,0.10<?<0.20t=1.15,0.10<P<0.20

b. ?=5.95,0.0005<?<0.05t=5.95,0.0005<P<0.05

c. ?=5.95,?<0.0005t=5.95,P<0.0005

d. ?=1.15,0.20<?<0.30t=1.15,0.20<P<0.30

Is there significant difference between the magnetic device and a placebo in relieving pain?

a. There is no evidence that the magnetic device is better than a placebo at relieving pain in this population, on average.

b. There is extremely strong evidence that the magnetic device is better than a placebo at relieving pain in this population, on average.

c. There is significant evidence that the magnetic device is better than a placebo at relieving pain among the study participants.

d. There is some moderate evidence that the magnetic device is better than a placebo at relieving pain in this population, on average.

(b) How much reduction in pain is achieved with the magnetic device? Select the correct 95%95% confidence interval for the mean difference in pain scores before and after treatment among patients given the magnetic device.

a. 3.2 to 5.63.2 to 5.6

b. 3.8 to 6.63.8 to 6.6

c. 4.2 to 6.24.2 to 6.2

d. 4.0 to 6.44.0 to 6.4

What procedure did you use for this confidence interval?

a. The matched pairs ?t procedure

b. The two‑sample ?t procedure

c. The one‑sample ?t procedure

d. None of the options are correct.

Balance sheet format, terminology, and accounting methods. Exhibit 4.4 presents the balance
sheet of Paul Loren Company for Years 10 and 9. This balance sheet uses the terminology

Paul Loren Company
Balance Sheets
For Years 10 and 9
(amounts in millions of US$) (Problem 32)
Year 10 Year 9
ASSETS
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 563.1 $ 481.2
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 584.1 338.7
Accounts receivable, net of allowances of $206.1 and $190.9 million . . . 381.9 474.9
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504.0 525.1
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.0 101.8
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139.7 135.0
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,275.8 2,056.7
Noncurrent investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75.5 29.7
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 697.2 651.6
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.9 102.8
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 986.6 966.4
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363.2 348.9
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148.7 200.4
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,648.9 $4,356.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 149.8 $ 165.9
Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.8 35.9
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559.7 472.3
Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747.3 674.1
Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747.3 674.1
Deferred Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282.1 406.4
Other Noncurrent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126.0 154.8
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,902.7 1,909.4
STOCKHOLDERS’ EQUITY:
Class A common stock, par value $0.01 per share; 75.7 million and
72.3 million shares issued; 56.1 million and 55.9 million shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 0.7
Class B common stock, par value $0.01 per share; 42.1 million and
43.3 million shares issued and outstanding . . . . . . . . . . . . . . . . . . . 0.4 0.4
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,243.8 1,108.4
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,544.9 2,177.5
Treasury stock, Class A, at cost (19.6 million and 16.4 million shares) . . . . (1,197.7) (966.7)
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . 154.0 126.8
Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,746.2 2,447.1
Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . $ 4,648.9 $4,356.5

format, and accounting methods of U.S. GAAP, and Paul Loren reports results in millions
of U.S. dollars. (Adapted from the financial statements of Polo Ralph Lauren.)
In addition to the items reported in Paul Loren’s balance sheet, assume the following
hypothetical information is available to you:
■ In Year 10 Paul Loren revalued a building with an acquisition cost of $200 million
downward, to its current fair value of $182 million.
■ In Year 10 Paul Loren wrote up the value of inventory, with a carrying value of $135
million, to its fair value of $165 million.
■ Included in commitments and contingencies for Year 10 is a lawsuit filed against Paul
Loren for breach of contract. Paul Loren estimates the following range of outcomes
for this lawsuit: 70% chance of damages of $100 million, 20% chance of damages of
$500 million, and 10% chance of damages of $1 billion.
a. Prepare a balance sheet for Paul Loren for Year 10, following the format, terminology,
and accounting methods required by U.S. GAAP. Ignore any income tax effects of any
revisions to reported amounts.
b. How, if at all, would your answer to part a differ if Paul Loren used IFRS?

2. Use the data in BUSI1013 Bank Dataset.xlsx (Unit 1 Question 2) to answer this question. (4 points for each part; 8 points total)
   
   1. Perform a statistical test to see whether the average loans of customers before the change at the Brock and Chase branch are different.
   2. Construct a 95% confidence interval for the difference of average loans of customers before the change at the Brock and Chase branch.

. Balance sheet format, terminology, and accounting methods. Exhibit 4.4 presents the balance sheet of Paul Loren Company for Years 10 and 9. This balance sheet uses the terminology, format, and accounting methods of U.S. GAAP, and Paul Loren reports results in millions of U.S. dollars. (Adapted from the financial statements of Polo Ralph Lauren.) In addition to the items reported in Paul Loren’s balance sheet, assume the following hypothetical information is available to you: ■ In Year 10 Paul Loren revalued a building with an acquisition cost of $200 million downward, to its current fair value of $182 million. ■ In Year 10 Paul Loren wrote up the value of inventory, with a carrying value of $135 million, to its fair value of $165 million. ■ Included in commitments and contingencies for Year 10 is a lawsuit filed against Paul Loren for breach of contract. Paul Loren estimates the following range of outcomes for this lawsuit: 70% chance of damages of $100 million, 20% chance of damages of $500 million, and 10% chance of damages of $1 billion. a. Prepare a balance sheet for Paul Loren for Year 10, following the format, terminology, and accounting methods required by U.S. GAAP. Ignore any income tax effects of any revisions to reported amounts. b. How, if at all, would your answer to part a differ if Paul Loren used IFRS?

Paul Loren Company Balance Sheets For Years 10 and 9 (amounts in millions of US$) (Problem 32)
Year 10 Year 9
ASSETS

Current Assets

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 563.1 $ 481.2

Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 584.1 338.7

Accounts receivable, net of allowances of $206.1 and $190.9 million . . . 381.9 474.9

Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504.0 525.1

Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.0 101.8

Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139.7 135.0

Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,275.8 2,056.7

Noncurrent investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75.5 29.7

Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 697.2 651.6

Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.9 102.8

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 986.6 966.4

Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363.2 348.9

Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148.7 200.4

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,648.9 $4,356.5

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 149.8 $ 165.9

Income tax payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.8 35.9

Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559.7 472.3

Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747.3 674.1
Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747.3 674.1

Deferred Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282.1 406.4

Other Noncurrent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126.0 154.8

Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,902.7 1,909.4
STOCKHOLDERS’ EQUITY:

Class A common stock, par value $0.01 per share;
75.7 million and 72.3 million shares issued;
56.1 million and 55.9 million shares outstanding . . . . . . . . . . . . . . . . . 0.8 0.7

Class B common stock, par value $0.01 per share;
42.1 million and 43.3 million shares issued and outstanding. . . . . . . . . . 0.4 0.4

Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,243.8 1,108.4

Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,544.9 2,177.5

Treasury stock, Class A, at cost (19.6 million and 16.4 million shares) . . . . (1,197.7) (966.7)

Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . 154.0 126.8

Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,746.2 2,447.1

Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . $ 4,648.9 $4,356.5

1. Which of the following is a valid alternative hypothesis for a one-sided hypothesis test about a population proportion p?

Suppose that the market for gourmet deli sandwiches is perfectly competitive and that the supply of workers in this industry is upward-sloping, so that wages increase as industry output increases. Delis in this market face the following total cost:

TC = q³ - 20 q² + 120 q + W

where,

Q = number of sandwiches

W = daily wages paid to workers

The wage, which depends on total industry output, equals: W = 0.3 Nq

where,

N = number of firms.

Assume that the market demand is:

Q^D = 900 - 10 P

1. What is the long-run equilibrium output for each firm?   

2. How much does the long-run equilibrium price change as the number of firms increases?

3. What is the long-run equilibrium number of firms?  

4. What is the total industry output?   

5. What is the long-run equilibrium price?

Suppose that the market for gourmet deli sandwiches is perfectly competitive and that the supply of workers in this industry is upward-sloping, so that wages increase as industry output increases. Delis in this market face the following total cost:

TC = q³ - 10 q² + 60 q + W

where,

Q = number of sandwiches

W = daily wages paid to workers

The wage, which depends on total industry output, equals: W = 0.3 Nq

where,

N = number of firms.

Assume that the market demand is:

Q^D = 900 - 5 P

1. What is the long-run equilibrium output for each firm?   

2. How much does the long-run equilibrium price change as the number of firms increases?

3. What is the long-run equilibrium number of firms?  

4. What is the total industry output?   

5. What is the long-run equilibrium price?