Question

Listed below are various costs from the Cost of Quality reports from various companies: Debugging software that failed during a test run Apollo Software Company Customer returns Bull’s Eye Store Cost of free meals because the meals were not delivered to the table within 15 minutes Webster’s Grille Continuing education program about common mistakes on tax returns Bolt and Hammer, CPA’s Depreciation of measurement equipment used to determine that candy bars are exactly 3.5 ounces Carry’s Chocolate Parts and labor to service a recall of brake parts Bubba’s Car Lot Labor cost of the worker who remelts aluminum castings that did not meet specifications Tracy Motor Company The maintenance team performs the regular 5,000 hour maintenance and inspections on the CNC machine Mercywood Manufacturing, Inc. The power level of each battery produced is tested prior to packaging On Demand Battery Co. Identify each cost as a prevention cost, appraisal cost, internal failure cost or external failure cost, and briefly explain why it’s that type of cost.

Answer 1

Quality Cost: Cost of performing the activities to check failure in meeting the quality specification. The "cost of quality" isn't the price of creating a quality product or service. It's the cost of not creating a quality product or service. Every time work is redone, the cost of quality increases. Obvious examples include:

• The reworking of a manufactured item.

•   The retesting of an assembly.

•    The rebuilding of a tool.

• The correction of a bank statement.

•   The reworking of a service, such as the reprocessing of a loan operation or the replacement of a food order in a restaurant.

In short, any cost that would not have been expended if quality were perfect contributes to the cost of quality.

Quality costs are the total of the cost incurred by;

•    Investing in the prevention of nonconformance to requirements.

•    Appraising a product or service for conformance to requirements.

•    Failing to meet requirements, which can be internal failure or external failure.

Prevention costs	Appraisal Costs	Internal Failure Costs	External Failure Costs
Quality Engineering	Inspection	Scrap	Revenue loss
Quality training	Product acceptance	Rework	Warranties
Quality Audits	Packaging inspection	Re-inspection	Discount due to defects
Design Review	Field testing	Re-testing	Product liability
Quality circles etc.	Continuing supplier verification etc.	Repair etc.	Warranty etc.

ANSWER TO THE QUESTION

Particulars	Type of Cost	Reason
Debugging software that failed during a test run	Appraisal Cost	It is internal inspection. It comes under appraisal.
Apollo Software Company Customer returns Bull’s Eye Store	External Failure Cost	Defect is found after sale. Hence it is external failure cost
Cost of free meals because the meals were not delivered to the table within 15 minutes	Internal Failure cost.	It is similar to rework. Also it is internal failure due to non delivery of food.
Webster’s Grille Continuing education program about common mistakes on tax returns.	Prevention Cost.	It is incurred to prevent the mistakes in tax returns. Hence it is prevention cost.
Bolt and Hammer, CPA’s Depreciation of measurement equipment used to determine that candy bars are exactly 3.5 ounces	Appraisal cost.	It is related to inspection and testing. Hence appraisal cost.
Carry’s Chocolate Parts and labor to service a recall of brake parts	Internal Failure Cost	It is due to reworking, reprocessing etc. Hence internal failure cost.
Bubba’s Car Lot Labor cost of the worker who re melts aluminum castings that did not meet specifications	Internal Failure cost.	It is due to reworking, reprocessing etc. Hence internal failure cost.
Tracy Motor Company The maintenance team performs the regular 5,000 hour maintenance and inspections on the CNC machine	Appraisal cost.	Inspection, product acceptance etc. comes under appraisal cost.
Mercy wood Manufacturing, Inc. The power level of each battery produced is tested prior to packaging On Demand Battery Co.	Appraisal cost.	Inspection, product acceptance etc. comes under appraisal cost.