20.16 Costs of quality analysis, non-financial quality measures . (20 min) 1 and 2 2012 2011 Sales €12,500,000 €10,000,000 Costs of quality Cost (1) Percentage of sales (2) = (1) ÷ €12,500,000 Cost (3) Percentage of sales (4) = (3) ÷ €10,000,000 Prevention costs Design engineering Preventive maintenance Training Supplier evaluations Total prevention costs Appraisal costs Line inspection Product-testing equipment Incoming materials inspection Product-testing labour Total appraisal costs Internal failure costs Scrap Rework Breakdown maintenance Total internal failure costs External failure costs Returned goods Customer support Product liability claims Warranty repair Total external failure costs Total costs of quality €240,000 90,000 120,000 50,000 500,000 85,000 50,000 40,000 75,000 250,000 175,000 135,000 40,000 350,000 145,000 30,000 100,000 200,000 475,000 €1,575,000 4.0% 2.0% 2.8% 3.8% 12.6% €100,000 35,000 45,000 20,000 200,000 110,000 50,000 20,000 220,000 400,000 250,000 160,000 90,000 500,000 60,000 40,000 200,000 300,000 600,000 €1,700,000 2.0% 4.0% 5.0% 6.0% 17.0% Between 2011 and 2012, Alcazarquivir’s costs of quality have declined from 17% of sales to 12.6% . The analysis of individual costs of quality categories indicates that Alcazarquivir began allocating more resources to prevention activities – design engineering, preventive maintenance, training and supplier evaluations in 2012 relative to 2011. As a result, appraisal costs declined from 4% of sales to 2%, costs of internal failure fell from 5% of sales to 2.8% and external failure costs decreased from 6% of sales to 3.8%.
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5 th Edition, Instructor’s Manual © Pearson Education Limited 2012 3 Examples of non-financial quality measures that Alcazarquivir could monitor are a Number of defective grinders shipped to customers as a percentage of total units of grinders shipped. b Ratio of good output to total output at each production process. c Employee turnover. Share with your friends: |