Question

Backwoods American, Inc., produces expensive water-repellent, down-lined parkas. The co. implemented a TQM program in 2005. Following are the quality-related accounting data that have been accumulated for the 5-year period after the program's start.

Year
	2006	2007	2008	2009	2010
Quality Costs ($1000s)
Prevention	3.2	10.7	28.3	42.6	50
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
TQC	187.2	201.7	212.5	193.9	166.9
Accounting Measures ($1000s)
Sales	2700.62	2690.12	705.22	310.22	880.7
Manufacturing Cost	420.9	423.4	424.7	436.1	435.5
Total Failure Cost Ratio	84.24%	80.22%	72.28%	65.60%	58.30%

	Year
	2006	2007	2008	2009	2010
Prevention Cost Ratio	1.71%	5.30%	13.32%	21.97%	29.96%
Appraisal Cost Ratio	14.05%	14.48%	14.40%	12.43%	11.74%

	Year
	2006	2007	2008	2009	2010
Quality Sales Indices	0.069	0.075	0.301	0.625	0.190
Quality Cost Indices	0.445	0.476	0.500	0.445	0.383

• List some examples of each quality-related costs - i.e., of prevention, appraisal, and internal and external failure costs - that might result from the production of the parkas.
• The BA Inc produces 20,000 parkas annually. The quality management program implemented improved average percentage of good parkas produced by 2% each year beginning with 83% good quality parkas in 2005. Only 20% of poor quality parkas can be reworked (and made good). Compute the product yield for each of the 5 years.
• Assuming a rework cost of $12/parka, determine the manufacturing cost per good parka for each of the 5 years. What do these results imply about the co's quality management program?

Answer 1

1)
Prevention :- Market research, that is, producing what consumers want; purchasing only high-quality down and other materials, designing an efficient and effective manufacturing process; training employees in making quality products.
Appraisal:- Inspection of raw materials, work-in-process, and finished product; equipment testing (pattern cutter, sewing machines, etc.), inspection.
Internal failure:- Wasted materials and labor, defective products discovered during inspection, use of inefficient processes, equipment downtime, poorly trained employees.
External failure:- Defective products, customer complaints, warranty costs, lost sales, loss of goodwill .
		A		+		B
2) Compute the product yield for each of the five years	Total Inputs	x % of goods input	Total Inputs x % of goods input	+	Total Inputs	x % of goods input	X % reworked	Total Inputs x % of goods input X % reworked	Yield (A + B)
2006	20000	83.00%	$ 16,600.00		20000	17.00%	20%	$     680.00	$ 17,280.00	good parkas
2007	20000	85.00%	$ 17,000.00		20000	15.00%	20%	$     600.00	$ 17,600.00	good parkas
2008	20000	87.00%	$ 17,400.00		20000	13.00%	20%	$     520.00	$ 17,920.00	good parkas
2009	20000	89.00%	$ 17,800.00		20000	11.00%	20%	$     440.00	$ 18,240.00	good parkas
2010	20000	91.00%	$ 18,200.00		20000	9.00%	20%	$     360.00	$ 18,560.00	good parkas
3)
Using a rework cost of $12 per parka, determine the manufacturing cost per good parka for each of the five years. What do these results imply about the company’s quality management program?	Cost per Parka	manufacturing cost per good parka
2006	$12	$     680.00	8160
2007	$12	$     600.00	7200
2008	$12	$     520.00	6240
2009	$12	$     440.00	5280
2010	$12	$     360.00	4320
These figures imply that the company’s quality management program is improving annually, because the number of poor-quality parkas declining, as well as the money to rework parkas.