Question

Three Rivers Inc. provides cable TV and Internet service to the local community. The activities and activity costs of Three Rivers are identified as follows: a. Identify the cost of quality classification for each activity and whether the activity is value-added or non-value-added. Quality Control Activities Activity Cost Quality Cost Classification Value-Added/ Non-Value-Added Classification Billing error correction $24,800 Cable signal testing 69,000 Reinstalling service (installed incorrectly the first time) 53,400 Repairing satellite equipment 18,400 Repairing underground cable connections to the customer 16,100 Replacing old technology cable with higher quality cable 104,300 Replacing old technology signal switches with higher quality switches 119,200 Responding to customer home repair requests 29,900 Training employees 24,900 Total activity cost $460,000 b. Prepare a cost of quality report. Assume that sales are $2,300,000. If required, round percentages to one decimal place. Three Rivers Inc. Cost of Quality Report Quality Cost Classification Quality Cost Percent of Total Quality Cost Percent of Total Sales Prevention $ % % Appraisal % % Internal failure % % External failure % % Total $ % % c. Prepare a value-added/non-value-added analysis. Three Rivers Inc. Value-Added/Non-Value-Added Activity Analysis Category Amount Percent Value-added $ % Non-value-added % Total $ % d. What percentage of total costs of quality are considered to be value-added?

Answer 1

Solution:-

Three Rivers Inc.

Cost of Quality Classification

Quality Control Activities	Activity Cost	Quality Cost Classification	Value Added or Non Value Added
Billing error correction	24,800	External Failure	Non-Value Added
Cable signal testing	69,000	Appraisal	Value Added
Reinstalling service	53,400	External Failure	Non-Value Added
Repairing satellite equipment	18,400	Internal Failure	Non-Value Added
Repairing underground cable connections to the customers	16,100	External Failure	Non-Value Added
Replacing old technology cable with higher quality cable	104,300	Prevention	Value Added
Replacing old technology signal switches with higher quality switches	119,200	Prevention	Value Added
Responding to customer home repair requests	29,900	External Failure	Non-Value Added
Training employees	24,900	Prevention	Value Added
Total Cost	460,000

b)

Quality Cost Classification	Quality Cost	% of Total Quality Cost	% of Total Sales
Prevention	248,400	54	10.8
Appraisal	69,000	15	3.0
Internal Failure	18,400	4	0.8
External Failure	124,200	27	5.4
Total Cost	460,000	100	20

c)

Three Rivers Inc

Value Added or Non Value Added Activity Analysis.

Category	Amount	Percent
Value Added	317,400	69
Non-Value Added	142,600	31
	460,000	100

d)

69% of total cost of quality is considered as value added.