14-1 HANSEN & MOWEN Cost Management ACCOUNTING AND CONTROL
14-2 Quality Cost Management 14
14-3 A quality product or service is one that meets or exceeds customer expectations. Quality of conformance is a measure of how a product meets its specifications. Costs of Quality 1
14-4 Distribution of Color Density of Sony Television Sets Costs of Quality 1
14-5 Defining Quality Costs 1) 1) Prevention costs 2) 2) Appraisal costs 3) 3) Internal failure costs 4) 4) External failure costs Costs of Quality 1
14-6 Examples of Quality Costs by Category Costs of Quality 1
14-7 Examples of Quality Costs by Category (cont’d) Costs of Quality 1
14-8 The Multiplier Method The Market Research Method The Taguchi Quality Loss Function Hidden Quality Costs are opportunity costs resulting from poor quality. Costs of Quality 1
14-9 The multiplier method assumes that the total failure cost is simply some multiple of measured failure costs: Total external failure cost = k(Measured external failure costs) where k is the multiplier effect If k = 4, and the measured external failure costs are $3 million, then the actual external failure costs are estimated to be $12 million. Costs of Quality 1
14-10 The market research method uses formal market research methods to assess the effect of poor quality on sales and market share. Customer surveys and interviews with members of a company’s sales force can provide significant insights into the magnitude of a company’s hidden costs. Market research results can be used to project future profit losses attributable to poor quality. Costs of Quality 1
14-11 The Taguchi loss function assumes any variation from the target value of a quality characteristic causes hidden quality costs. Furthermore, the hidden quality costs increase quadratically as the actual value deviates from the target value. Costs of Quality 1
14-12 L(y) = k(y – T)² k = A proportionately constant dependent upon the organization’s external failure cost structure y =Actual value of quality characteristic T = Target value of quality characteristic L =Quality loss The Taguchi Quality Loss Function Costs of Quality 1
14-13 Costs of Quality 1 The Taguchi Quality Loss Function
14-14 Costs of Quality 1 Quality Loss Computation Illustrated
14-15 Quality Cost Report Basic Concepts of the Balanced Scorecard 2 a Actual sales of $5,000,000. b $1,000,000/$5,000,000 = 20 percent.
14-16 Quality Cost Categories: Relative Contribution Graphs Basic Concepts of the Balanced Scorecard 2
14-17 AQL Quality Cost Graph Basic Concepts of the Balanced Scorecard 2
14-18 Zero-Defects Quality Cost Graph Basic Concepts of the Balanced Scorecard 2
14-19 Strategic Pricing Revenues $20)$20,000,000 Cost of goods sold-15,000,000 Operating expenses - 3,000,000 Product-line income$ 2,000,000 3 Quality Cost Information and Decision Making
14-20 Data from the low-level instruments are: Quality costs (estimated): Inspection of materials$ 200,000 Scrap800,000 Rejects500,000 Rework400,000 Product inspection300,000 Warranty work 1,000,000 Total estimate$3,200,000 Strategic Pricing 3 Quality Cost Information and Decision Making
14-21 Reports: New Product Analysis, Project #675 Projected sales potential: 44,000 units Production capacity: 45,000 units Unit selling price: $60 Unit variable costs: $40 Fixed costs: Product development$ 500,000 Manufacturing200,000 Selling 300,000 Total$1,000,000 Projected break-even: 50,000 units Decision: Reject Reason(s): The break-even point is greater than the production capacity as well as the projected sales volume. 3 Quality Cost Information and Decision Making
Quality Cost Information and Decision Making ISO 9000 Standards
14-23 Zero-defect standards reflects a philosophy of total quality control and calls for products and services to be produced and delivered that meet the targeted value. 4 Controlling Quality Costs The Total Quality Approach
Progress with respect to a current-period standard or goal (an interim standard report) 2.The progress trend since the inception of the quality-improvement program (a multiple-period trend report) 3.Progress with respect to the long-range standard or goal (a long-range report) 4 Controlling Quality Costs The Total Quality Approach
Controlling Quality Costs Interim Quality Performance Report
Controlling Quality Costs Interim Quality Performance Report
Controlling Quality Costs Interim Quality Performance Report
Controlling Quality Costs Interim Quality Performance Report
Controlling Quality Costs Multiple-Period Trend Graph: Total Quality Costs
Controlling Quality Costs Multiple-Period Trend Graph: Individual Quality Costs Categories
Controlling Quality Costs Multiple-Period Trend Graph: Relative Quality Costs
Controlling Quality Costs Long-Range Quality Performance Report
Controlling Quality Costs Long-Range Quality Performance Report
Controlling Quality Costs Long-Range Quality Performance Report
Controlling Quality Costs Long-Range Quality Performance Report
14-36 End of Chapter 14