Question

Identify and briefly explain TWO (2) costs of quality

Explain the importance of creating close relationships with suppliers.

Identify and discuss TWO (2) characteristics of a good performance measurement system.

Explain the importance of considering costs and benefits in management accounting decisions.

Answer 1

From the name itself we can understand that cost of quality is amount or cost that spend on a product to maintain its quality. Now, this world is consumer-oriented, consumer is the king. Consumer decides what they want to purchase and where they want to spend money. So competition between sellers place a big role inorder to gain customer loyality and retention. Customer only retain to product that maintains good quality and reasonable price. So, organisation doesnot compensate their customer for cheap quality. And they are willing to pay for product quality before customer find outs issues in product.

Cost of quality can be of 4 types :

1) Prevention cost : It is the cheapest method, the cost implied inorder to prevent any quality issues from the beginning and during the making of product.

2) Appraisal cost : Checking the product if it has any quality issues through appraisal/ assessment of product.

3) Internal failure cost : It is that cost of identifying defective product before reaching it in the organisation.

4) External failure cost : It happens after the product reaches customer. This cost damages most, because it can lose customer loyality and retention. Customer will opt another product instead of this product.

By keeping close relationship with the supplier, it helps the manufacterer get good and quality raw materials in time. It also helps the organisation to get raw materials in discounted price and in credit basis also.

Companies doing performance measurement in order to assess the performance of activities. It allows comparison and helps to identify the shortcomings , and rectifying it.

1) Performance measurement should be conducted between proper intervals / proper timings.

2) If any faults identifies, it should be corrected within time.

The importance of considering cost benefit in management decisions are as follows:

1) A cost benefit analysis helps in choosing two or more alternatives based on afermath outcome of the various alternatives.

2) It hepls in proper matching of cost with revenue: So, that management can take decisions on cost controlling and cost reduction.