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

2023
Views:

406

Pages:

2
Author:

Bukan D

Prevention Costs Cost of Quality Before 1980, quality advocates found it difficult to get senior management attention and commitment to a total quality control program. While agreeing in principle that better quality was preferable to lesser quality, the executives still devoted their efforts to actions that promised immediate impact on short-term financial performance as measured by earnings-per-share and return-on-investment. Relative to these financial measures, improvements in quality represented an abstract, somewhat intangible, target. To overcome this indifference to quality improvement, quality advocates devised a financial approach to quality that they hoped would capture the attention of senior, financially oriented managers. The Cost of Quality (COQ) approach collects all costs currently being spent on preventing defects and fixing them after they have occurred. The Cost of Quality, also called the cost of nonconformance, attempts to compute a single aggregate measure of all the explicit costs attributable to producing a product that is not within specifications. It is a comprehensive, plant or companywide financial measure of quality performance. The costs of nonconformance can be classified into four categories : 1. Prevention: The costs of designing, implementing, and maintaining an active quality assurance and control system; includes the costs of design and process engineering, quality control systems, quality planning, and quality training Quality prevention costs include • The costs of engineering studies for improved production processes that will produce higher-quality products • The cost of equipment to produce higher-quality products • The cost of improved raw materials and supplier training • The cost of preventive maintenance programs 2. Appraisal: The costs of ensuring that materials and products meet quality conformance standards; includes the costs of inspecting raw materials and purchased parts, inspecting in-process and finished products, lab tests, quality audits, and field tests 3. Internal Failure: The costs of manufacturing losses from materials and products that do not meet quality standards; includes the costs of scrap, repair, rework, upgrade, downtime, and discounts on sales of substandard parts and materials 4. External Failure: The costs of shipping inferior quality products to customers; includes the costs of handling customer complaints and claims, warranty and replacement costs, and freight and repairs of returned merchandise