Question

Digital River Inc. provides cable TV and Internet service to the local community. The activities and activity costs of Digital Light are identified as follows:

1	Activities	Activity Cost
2	Billing error correction	$30,000.00
3	Cable signal testing	86,400.00
4	Reinstalling service (installed incorrectly the first time)	29,000.00
5	Repairing satellite equipment	32,400.00
6	Repairing underground cable connections to the customer	19,000.00
7	Replacing old technology cable with higher quality cable	170,000.00
8	Replacing old technology signal switches with higher quality switches	123,000.00
9	Responding to customer home repair requests	24,600.00
10	Training employees	25,600.00
11	Total	$540,000.00

Amount Descriptions
Appraisal
External failure
Internal failure
Non-value-added
Prevention
Value-added

Identify the cost of quality classification for each activity and whether the activity is value-added or non-value-added.

Quality Activities	Activity Cost	Quality Cost Classification	VA/NVA
Billing error correction	$ 30,000
Cable signal testing	86,400
Reinstalling service (installed incorrectly the first time)	29,000
Repairing satellite equipment	32,400
Repairing underground cable connections to the customer	19,000
Replacing old technology cable with higher quality cable	170,000
Replacing old technology signal switches with higher quality switches	123,000
Responding to customer home repair requests	24,600
Training employees	25,600
Total	$540,000

B. Prepare a cost of quality report. Assume that sales are $1,900,000. Round percentages to one decimal place. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.

Digital River Inc.

Cost of Quality Report

1	Quality Cost Classification	Quality Cost	Percent of Total Quality Cost	Percent of Total Sales
2
3
4
5
6	Total

Prepare a value-added/non-value-added analysis. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.

Digital River Inc.

Value-Added/Non-Value-Added Activity Analysis

1	Category	Amount	Percent
2
3
4	Total

Interpret the information in (B) and (C).

What percentage of total costs of quality are considered to be value-added?  %

Answer 1