4Question 3 The following cost of quality report was prepared for the years 2008

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4Question 3 The following cost of quality report was prepared for the years 2008 and 2009 by an inexperienced accounting clerk. The sales were $550,000 in 2008. For 2009, sales were similar to 2008 Cost of Quality Report years 2008 and 2009 2009 % of sales 2008 % of sales Prevention costs Inspection Quality engineering Product testing $6.800 39.54% 5,200 30.23 5.200 50.23 17,200 100.00% $ 4,300 32.67% 5,290 570 27.13 13,160 40.20 100.00% Interaal failure costs Systems development Supplier evaluation Supplies used in testing 34.42% 26.62 8.9 100.00% 4,120 2,855 24.12 4.860 11,835 100.00% 34.81% 4,700 3,635 320 613,655 41.07 Appraisal costs Disposal of defective products Net cost of scrap Product recalls Rework labour 28.76% 5,220 3,990 5,660 3.500 18,370 28.42% 21.72 30.81 19.05 5,100 3,900 22.00 5,400 30.46 3330 18.78 100.00% 17,730 100.00% External failure costs Warranty repairs Warranty replacements 42.79% 5721 5,100 43.97% 4,900 11.600 100.00% 11.450 100.00% Total quality cost S 56.785 S 58.215 Sales $550,000 $550,000 The clerk did not know how to categorize the amortization of testing equipment. The amortization expense was $5,000 for each year Required Prepare a cost of quality report in good form for years 2008 and 2009 3 b. Describe three advantages of nonfinancial measures of quality 4 c. Based on your answer to part a), indicate how you would evaluate the performance of the manager responsible for controlling quality. Indicate what recommendations you would make to improve the process of quality control. Justify your answer 1 d Indicate to which type of management control system a cost of quality report belongs

Explanation / Answer

COST OF QUALITY REPORT For the year 2009 2009 2008 PREVENTION COST: Quality engineering $5,290 $5,200 System development $4,700 $4,120 Supplier evaluation $3,635 $2,855 Total $13,625 $12,175 Percentage of sales 2.48% 2.21% (13625/550000)*100, (12175/550000)*100 APPRAISAL COSTS Amortization expense(test equipment) $5,000 $5,000 Inspection $4,300 $6,800 Product testing $3,570 $5,200 Supplies used in testing $5,320 $4,860 Total $18,190 $21,860 Percentage of sales 3.31% 3.97% (18190/550000)*100,(21860/550000)*100 INTERNAL FAILURE COST: Rework labor and overhead $3,500 $3,330 Net cost of scrap $3,990 $3,900 Disposal of defective products $5,220 $5,100 Total $12,710 $12,330 Percentage of sales 2.31% 2.24% (12710/550000)*100, (12330/550)*100 EXTERNAL FAILURE COST: Product recall $5,660 $5,400 Warranty repair $5,100 $4,900 Warranty repalacement $6,550 $6,550 Total $17,310 $16,850 Percentage of sales 3.15% 3.06% (17310/550000)*100. (16850/550000)*100 TOTAL COST OF QUALITY $61,835 $63,215 Cost of Quality as percentage of sales 11.24% 11.49% ADVANTAGES OF NON FINANCIAL MEASURES OF QUALITY 1 Non financial measures of qualty helps in communicating with operations managers 2 These help in deciding long term strategy on quality 3 Non financial indicators of quality help operation manager to understand and take concrete actions on quality Financial measures are just figures that does not help in pinpointing the problems and actions required c. Cost of quality is reduced in 2009 compared to 2008 Amount spent on prevention is lower than external failure cost The manager should take action on prevention workers training etc d Cost of quality report is Operation Oriented Management Control System

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