Question

This problem is based on one of the topics, Costs of Quality, in chapter four of your class textbook - Managing Quality: Integrating the Supply Chain, 6^th Edition by S. Thomas Foster. An example is solved for you in the text. Study the chapter and solve the following problems.

Statement of the problem

The Colorado Manufacturing Company of Boulder, CO has gathered the following quality-related costs. You are hired as a consultant to evaluate these costs and to make recommendations to management.

Annual Quality Costs

Failure Costs Defective Products $ 4,234 Engineered Scrap $ 21,265 Non-engineered Scrap $ 224,123 Consumer Adjustments $ 125,654 Downgrading Products $ 2,125,328 Lost Goodwill Not evaluated Customer Policy Changes Not evaluated Total

Appraisal Costs Receiving Inspection $ 24,138 Line 1 Inspection $ 7,256 Line 2 Inspection $ 8,543 Spot Checking $ 2,766 Total

Prevention Costs Quality Training $ 25,500 Process Engineering Corporate $ 132,678 Plant $ 44,124 Product Redesign $ 10,422 Total Compute the ratio of prevention and appraisal costs to total quality cost (total quality coast = prevention cost + appraisal cost + failure cost) and express your answer in percentage. Compute the ratio of appraisal cost to total quality cost where total quality cost is as defined inside the bracket in question 1. Express your answer in percentage. From the results in (a) above, what is the ratio of failure cost to total quality cost?

Answer 1

Concept :

Conformance Costs - Cost of Good Quality.

1. Prevention Costs - Costs Incurred to "Prevent" Quality Problems that is Designing, Implementing and Maintaining the Quality Management System.

2. Appraisal Costs - Costs incurred to "Appraise" Quality that is Testing and Inspection activities related to Quality before Production is Complete.

Non-Conformance Costs - Cost of Poor Quality.

1. Failure Costs - Costs Incurred to remedy defects discovered after Production is Complete.

a. Internal Failure Costs - Failure Costs incurred before Product / Service is delivered to the Customers.

b. External Failure Costs- Failure Costs incurred after Product / Service is delivered to the Customers.

Calculation ( Applicable to All ANSWERS ).

Total Quality Costs = Total Prevention Costs + Total Appraisal Costs + Total Failure Costs.

$ 212,724 * + $ 42,703* + $ 2,500,604*

$ 2,756,031.

* Working :

Total Prevention Costs= Quality Training + Process Engineering Corporation + Plant + Product Redesign.

$ 25,500 + $ 132,678 + $ 44,124 + $ 10,422.

$ 212,724.

Total Appraisal Costs = Receiving Inspection + Line 1 Inspection +:Line 2 Inspection + Spot Checking.

$ 24,138 + $ 7,256 + $ 8,543 + $ 2,766.

$ 42,703.

Total Failure Costs = Defective Product + Engineered Scrap + Non-Engineered Scrap + Customer Adjustments + Downgrading Products.

$ 4,234 + $ 21,265 + $ 224,123 + $ 125,654 + $ 2,125,328.

$ 2,500,604.

Main Answer :

(a).

Ratio of Prevention Costs and Appraisal Costs to Total Quality Costs.

Total Prevention Costs + Total Appraisal Costs / Total Quality Costs × 100.

$ 212,724 ( Calculated ) + $ 42,703 ( Calculated ) / $ 2,756,031 ( Calculated ) × 100.

$ 255,427 / $ 2,756,031 × 100.

9.2679%

9.27% ( Round Off ).

(b).

Ratio of Appraisal Costs to Total Quality Costs.

Total Appraisal Costs / Total Quality Costs × 100.

$ 42,703 / $ 2,756,031 × 100.

1.5494%

1.55% ( Round Off ).

(c).

Ratio of Failure Costs to Total Quality Costs.

Failure Costs / Total Quality Costs × 100.

$ 2,500,604 / $ 2,756,031 × 100.

90.7320%

90.73% ( Round Off ).