QUESTION 4: Brown Company makes products sold directly to customers. The company

Question

QUESTION 4: Brown Company makes products sold directly to customers. The company updates its ucts through design reviews to stop non-conformances from occurring In addition e company is committed to continuous quality improvement. At the end of 2017, the following quality costs were reported: Design review Recalls Re-inspection Materials inspection Quality training Process acceptance67,500 Scrap Lost sales Product inspection Returned goods 405,000 135,000 67,500 54,000 135,000 47.250 270,000 40,500 128,250 Required Prepare a quality cost report. showing the costs classified into the four categories of quality costs. Comment on the distribution of the quality costs What would you recommend to management?

Explanation / Answer

Quality costs fall into 4 categories -

Despite the Preventive cost being considerably high, the External failure cost is nearly equally high, since there is a good amout of returns and recalls and most importantly a substantial lost sale.

As an advice to the management, I would like to tell them to work on their preventive tasks a little better. Either the design has a significant flaw or the review or training is not happening well to prevent the production of damaged goods. The Internal Fauilre testing team is also failing to detect these and ultimately defective products are reaching the consumers as a result of which there are high returns and recalls. On the first place, I would like to reduce the production of defective products itself, hence would pay special focus to not only the preventive activities but also the Appraisal team also needs to scrutinize each element of the pre-production chain meticulously.

Prevention Costs Total 540,000 Appraisal Cost Total 162,000 Internal Failure Cost Total 114,750 External failure costs Total 533,500 Deseign Review 405,000 Material Inspection 54,000 Re-inspection 67,500 Recalls 135,000 Quality training 135,000 Process Acceptance 67,500 Scrap 47,250 Lost Sales 270,000 Product Inspection 40,500 Returned Goods 128,500

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