Question

Gulf Company has gathered the following information on quality costs for the year 2017: Quality engineering of products $20,000 Quality training of employees $2,000 Net cost of scrap $30,000 Rework labor $4,500 Warranty repairs $100,000 Product recalls $200,000 Liability arising from defective products $1,000,000 Maintenance of test equipment $44,000 Quality improvement projects $55,000 Setups for testing $3,000 Supplies used in testing $5,500 Downtime caused by defects $70,000 Disposal of defective products $80,000 Assume that year sales totaled $5,000,000 Required:

a. As a manager of quality at the Gulf Company, prepare the quality cost report that organizes the data.

b. Comments on the report.

c. What actions would you take as the quality manager at Gulf Company?

Answer 1

(b) Comments on the report

The company' external failure cost is 7.10% of the total sales and in which product recalls is 4%. This indicates that the quality of the product is not satisfactory to many customers and defects are also found in products.Apart from that Downtime by defects cost is 1.40% of total sales whiich is considered to be on a higher scale, so company needs to reduce the same.

(c) Actions Taken

The company should spend more on prevention and appraisal cost as it would help company to manufacture quality products which will in fact reuce its external and internal failure cost by reducting the defective products.