Question

Acme Materials Company manufactures and sells synthetic coatings that can withstand high temperatures. Its primary customers are aviation manufacturers and maintenance companies. The following table contains financial information pertaining to cost of quality (COQ) in 2019 and 2020 (in thousands of dollars):

	2019			2020
Sales	$	16,500		$	20,500
Materials inspection		350			65
In-process (production) inspection		165			130
Finished product inspection		300			75
Preventive equipment maintenance		25			65
Scrap (net)		550			350
Warranty repairs		750			500
Product design engineering		155			320
Vendor certification		15			65
Direct costs of returned goods		325			85
Training of factory workers		45			145
Product testing—equipment maintenance		65			65
Product testing labor		260			95
Field repairs		75			45
Rework before shipment		290			205
Product-liability settlement		410			65
Emergency repair and maintenance		250			80

QUESTIONS:

1. Classify the cost items in the table into cost-of-quality (COQ) categories. Calculate the ratio of each COQ category to revenues in each of the 2 years.

	2019 2020 Amount % of Sales Amount % of Sales Cost of quality: Prevention costs: Total prevention costs $0 % $0 % Appraisal costs: Total appraisal costs $0 % $0 % Internal failure costs: Total internal failure costs $0 % $0 % External failure costs: Total external failure costs $0 % $0 % Total cost of quality (COQ) $0 % $0 %

2. Calculate the percentage change in each COQ category and total COQ and comment on the results:

3a. Percentage change in total COQ as a percentage of sales, from 2019 to 2020 % increase/decrease 3b. Total COQ in 2020 expressed as a percentage of 2019 sales dollars % 3c. Percentage change in total prevention costs, 2019 to 2020 ____ % 3d. Percentage change in total appraisal costs, 2019 to 2020 % 3e. Percentage change in total internal failure costs, 2019 to 2020 % 3f. Percentage change in total external failure costs, 2019 to 2020 %

Answer 1

There are follwoing four categories of Cost of Quality :

• Appraisal
• Preventive
• Internal Failures
• External Failures

Ans-1

The listed costs categorized in these categories are tabultated hereunder

Ans-2

Comments:

There was drastic reduction in cost of quality in 2020 as compared to 2019.The over all cost as a percentage of sales decreased by 13% and reduction percentage was 42% (2355-4030)/4030.

There were reductions in all the components but the biggest fall was observed in Appraisal cost where the drop or improvement was of 67%.External costs too had a considerable drop of 56%.