An activity analysis shows the following quality cost activities: Warranty . . .

Question

An activity analysis shows the following quality cost activities:
Warranty . . . . . . . . . . . . . . . . . . . $100,000
Rework . . . . . . . . . . . . . . . . . . . . . 80,000
Final inspection. . . . . . . . . . . . . . . . 30,000
Supplier certification . . . . . . . . . . . . 60,000
Employee training . . . . . . . . . . . . . . 90,000
Disposal of scrap . . . . . . . . . . . . . . . 40,000
Total . . . . . . . . . . . . . . . . . . . . . $400,000

What is the percentage of prevention cost to total cost?

Explanation / Answer

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Well it looks like all of these are prevention costs except for the warranty (a failure cost) and the final inspection (an appraisal cost). So if you subtract these from 400,000 you will get $240,000. Divide this by the total and then multiply by 100 to get: 240,000/400,000 x 100 = 60%

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