Question

Cost of Quality and Value-Added/Non-Value-Added Reports for a Service Company

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	$27,100		External failure	Non-value-added
Cable signal testing	94,400		Appraisal	Value-added
Reinstalling service (installed incorrectly the first time)	58,400		External failure	Non-value-added
Repairing satellite equipment	41,300		Internal failure	Non-value-added
Repairing underground cable connections to the customer	17,600		External failure	Non-value-added
Replacing old technology cable with higher quality cable	133,800		Prevention	Value-added
Replacing old technology signal switches with higher quality switches	152,900		Prevention	Value-added
Responding to customer home repair requests	32,600		External failure	Non-value-added
Training employees	31,900		Prevention	Value-added
Total activity cost	$590,000

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b. Prepare a cost of quality report. Assume that sales are $2,950,000. If required, round percentages to two decimal places.

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	$	%	%

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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	$	%

Answer 1