Homework SourseThe ABC Company has collected the following qualityrelated c
The ABC Company has collected the following quality-related costs.
Annual Quality related Costs:
Receiving Inspection $ 24,138
Engineered Scrap $ 21,265
Defective Products $ 4,234
Non-engineered Scrap $ 224,123
Product Redesign $ 10,422
Consumer Adjustments $ 125,654
Line 1 Inspection $ 7,256
Line 2 Inspection $ 8,543
Downgrading Products $ 2,125,328
Spot Checking $ 2,766
Quality Training $ 25,500
Process Engineering $ 136,802
As a consultant to the company, evaluate these costs and make recommendations to the management. In particular:
1-Organize the data in COQ categories
2-Compute the ratio of prevention and appraisal costs to failure costs
3- Identify strategies for reducing costs.
Solution
1. Prevention cost:
Line 1 Inspection $ 7,256
Line 2 Inspection $ 8,543
Spot Checking $ 2,766
Quality Training $ 25,500
2. Appraisal cost
Receiving Inspection $ 24,138
Product Redesign $ 10,422
Process Engineering $ 136,802
3. Internal failure cost
Engineered Scrap $ 21,265
Non-engineered Scrap $ 224,123
Downgrading Products $ 2,125,328
Defective Products $ 4,234
4. External failure cost
Consumer Adjustments $ 125,654
2. Ratio:
215427/ 2500604 = 0.08
3. Strategies:
The cost can be reduced by improving the appraisal cost. The increase in appraisal cost will help in saving the internal failure and external failure cost. The cost can also be saved by improving the satndards of quality and inspection.
