In: Accounting
The Management Accountant is considering introducing a system of Total Quality Management as recent productivity reports have shown an increase in defective output. This has tarnished the reputation of the company.
The company produces confectionary products and sells to various retailers.
Required:
1) What do you understand by a system of Total Quality Management?
2) What are the various category of TQM related costs. Give an example of each as it relates to the company.
Total Quality Management | |||||||||||
1) | Total Quality Management or TQM is a people focused management system that aims at continual increase in customer satisfaction at continually lower real cost. | ||||||||||
There is a sustained management commitment to quality and everyone in the organization and the supply chain is responsible for preventing rather than detecting defects | |||||||||||
TQM is a total system approach(not a separate area or program) and an integral part of high level strategy. It works horizontally across functions and departments, | |||||||||||
involves all employees, top to bottom, and extends backward and forward to include the supply chain and the customer chain. | |||||||||||
TQM stresses learning and adaptation to continual change as keys to organiszational success. | |||||||||||
According to TQM, quality management should be spread over all the departments, and should not focus on merely sorting good products from bad | |||||||||||
Categories of TQM Related Costs | |||||||||||
2) | a) Prevention Costs | ||||||||||
These are the costs of all activities specifically
designed to prevent poor quality in products or services |
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Examples are the costs of new product review, quality planning, supplier capability surveys, process capability evaluations, quality improvement team meetings, |
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quality improvement projects, and quality education and training. |
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b) Appraisal Costs | |||||||||||
The costs associated with measuring, evaluating, or
auditing products or services to assure conformance to quality standards and performance requirements |
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These include the costs of incoming and source
inspection/test of purchased material, in-process and final inspection/test, product, process, or service audits, |
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calibration of measuring and test equipment, and
the costs of associated supplies and materials. |
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c) Failure Costs | |||||||||||
The costs resulting from products or services not
conforming to requirements or customer/user needs. Failure costs are divided into internal and external failure cost categories |
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(i) Internal Failure Costs | |||||||||||
Failure costs occurring prior to delivery or
shipment of the product, or the furnishing of a service, to the customer. |
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Examples are the costs of scrap, rework, reinspection, retesting, material review, and downgrading. |
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(ii) External Failure Costs | |||||||||||
Failure costs occurring after delivery or shipment
of the product, and during or after furnishing of a service, to the customer |
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Examples are the costs of processing customer complaints, customer returns, warranty claims, and product recalls. |
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c) Total Quality Costs | |||||||||||
The sum of the above costs. It represents the
difference between the actual cost of a product or service, and what the reduced cost would be if there were no possibility |
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of substandard service, failure of products, or
defects in their manufacture |
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# | Quality cost reports can be used to point out the
strengths and weaknesses of a quality system. |
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# | Improvement teams can use them to describe the
monetary benefits and ramifications of proposed changes |
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