Question

 Exercise 1: PAF Cost Analysis (5 Points): Colorado Manufacturing Company (CMC)

 has gathered the following quality data.

 On the attached page you will find CMC's Annual Quality Cost Data. Within the table provided below, show your calculation setups and solutions for the following required calculations.

 What is your interpretation of CMC's quality cost data? Are they doing well or poorly? State how and why you know this.

 What priority should be placed in addressing their quality costs? Why?

Answer 1

1)

Total Failure cost = 75276 (a)

Total appraisal Cost = 36601 (b)

Total Prevention Cost = 212724 (c)

Total Quality Costs = 324601 (a + b + c)

Ratio of

Prevention to failure cost : 212724/75276 = 2.82

Appraisal to failure cost : 36601/75276 = 0.48

Prevention + Appraisal cost to failure cost :

(212724 + 36601) ÷ 75276 = 3.31

Proportion of

Prevention to total quality cost : (212724/324601)*100 = 65.53%

Appraisal to total quality cost :

(36601/324601)*100 = 11.27%

Failure to total quality cost : (75276/324601)*100 = 23.19%

2)

There is an inverse relationship between prevention and appraisal costs and internal and external failure costs. So spending money on prevention can reduce the costs of internal and external failure, or If less is spent on prevention, then more failure costs will be incurred.If a company spends little money on prevention, it is likely that the company will have low internal failure costs and high external failure costs.

From the data it's clear that for CNC company also spent more on prevention and appraisal cost and hence reduced it's Total failure costs.

So up to an extent the company's Quality Department is doing well.

3)

Following steps should be taken to reduce the quality costs

Conduct timely quality audit.

Proper training for employees and suppliers.

Systematic Preventive Maintenance Procedures.

investing in proper quality control equipment.

creation of plans for quality, reliability, operations, production, and inspection.