University:
Duke University
Course:
ACCOUNTG 591 | Managerial Accounting
Academic year:

2023
Views:

495

Pages:

2
Author:

Bukan D

COQ System Evolution Several categories of quality costs, such as indirect costs and losses considered inherent to the manufacturing process, were not captured in the COQ system. Indirect quality costs arose from support department personnel repeating tasks because of problems with shipments (defective or incorrect parts, over- or undershipments, late deliveries, etc.) or because the tasks were not done correctly the first time. Examples included the cost of retyping orders, rebuilding tools, and rebilling customers as well as correcting paperwork errors and incorrect journal entries. Efforts were underway to determine the level of indirect quality costs through "Hidden Factory" reviews. When originally implemented, the COQ system excluded costs that were considered to be a standard part of the manufacturing process. For example, a calibration process in production may have been imperfect, requiring parts to be manually checked on the line. The costs of the manual checking were not included in COQ, leading to an understatement of quality costs. Scrap costs were also underreported by a number of PCCs. EXHIBIT Cost of Quality Variables Motor Controls PCC Rework Actual cost of rework from the labor reporting system. Rework was charged to a special link (charge) number. Manufacturing/Process Engineering Estimated percentage Manufacturing/Proc-ess of actual Engineering expenses spent on internal failure. The estimated percentage was revised every six months by the manager of Manufacturing Engineering. External Failure Costs Net RMR Cost Cost of returns less good material to Marketing inventory. Estimated percentage of actual Marketing expenses spent on external failure. Manufacturing/Process Engineering Estimated percentage Manufacturing/Proc-ess of actual Engineering expenses spent on external failure. The estimated percentage was revised every six Repair Actual cost of repair from the labor reporting system. Repair time was charged to a special link (charge) number. Travel Actual travel costs related to quality problems. Computed from the monthly actual report. Liability Claims Infrequent claims. Liability claims were included when incurred or when a reserve was taken. Legal fees, which did not hit the Group profit-and-loss statement, were not included. The COQ system had been easy to implement since it used data that already existed in the accounting system. Now, however, the desire to maintain consistency over time, so that trends would be visible, had made it difficult to add new measures such as indirect quality or engineered scrap costs. In effect, attempts to update the COQ system to make it more accurate and relevant were in conflict with the need to maintain comparability across periods.