University:
Everett Community College
Course:
ACCT 201 | Principles of Accounting I
Academic year:

2022
Views:

349

Pages:

2
Author:

Nyasia Cardenas

As the main objective of TQM is getting it right first time, a Cost of Quality Report is a useful aid the implementation. The main aim of a COQ report is to focus management’s attention by providing a framework and categories of quality costs. It shows the level of costs and the relationship between various categories of quality costs. The report supports continuous improvement and can form the basis of benchmarking and performance measurement. The COQ Report separates costs into four categories: £ % of Sales Revenue Prevention Costs - Training 8,000 Total Prevention Costs 8,000 0.10 0.10 Appraisal Costs - Product Testing 12,000 Total Appraisal Costs 12,000 0.15 0.15 Internal Failure Costs - Batches Rejected Discount to 17,000 Customers Total Internal Failure Costs 22,000 39,000 0.21 0.28 0.49 External Failure Costs - Regulatory Fines Total External Failure Costs Total 5,000 5,000 64,000 0.06 0.06 0.80 Prevention and Appraisal costs are considered ‘good’ costs because they comply with the get it right first time objective of TQM. They effectively prevent the ‘bad’ costs such as Internal and External Failure costs. From the COQ Report, the majority of costs are ‘bad’ costs, 68.75%. With the highest cost being discounts to customers at £22m and 0.28% of revenue. Barely any money is being spent on training and product testing which is why the ‘Bad’ costs are so high. A lack of training is causing staff to produce inferior products which are getting rejected during product testing, however, not all of them. The vast amount of batches rejected has caused the late delivery to customers which lead to £22m worth of compensation. This money would have been better off spent on training and support of staff, a ‘good’ cost, which will mean staff are higher skilled and can produce products to the right specification so they won't get rejected and will make it to customers on time. Due to inferior batches making it passed product testing and to the customers, Radical has been charged with a fine of £5,000, 0.06% of revenue. This could have been avoided by an increase in training and also increasing the product testing costs. This would ensure that all products reaching customers meet the regulations required. Increasing the ‘good’ costs not only decrease the ‘bad’ costs but they also increase customer satisfaction and Radical’s reputation due to producing quality products that always arrive one time and will always meet the standards set by regulations. This will help retain their current customers and also bring in new ones.