Description and costs are listed together Quality training

Description and costs are listed together.

Quality training $ 4,000

Reliability training $ 20,000

Scrap $ 15,000

Downtime $ 6,000

Transportation losses due to shipment delays $ 8,000

Supplies inspection $ 6,000

Contracted performance testing $ 300,000

Pilot production runs $ 8,000

Reliability testing $ 9,560

Based on the following costs, what is the Cost of Quality (CoQ)? (Note, not all of the costs listed in the table are quality costs). Group the costs into one of the four categories associated with the CoQ (prevention, appraisal, internal failure, external failure). Which of the CoQ cost categories is the highest? Which is the lowest?

Solution

Cost of quality is a methodology that allows an organization to determine the extent to which its resources are used for activities that prevent poor quality, that appraise the quality of the organization’s products or services, and that result from internal and external failures. Having such information allows an organization to determine the potential savings to be gained by implementing process improvements.

Quality-related activities that incur costs may be divided into prevention costs, appraisal costs, and internal and external failure costs.

The various activities have been categorized accordingly.

Item

Cost ( $)

Type of Quality cost

Quality training

4,000

Prevention cost

Reliability training

20,000

Prevention cost

Scrap

15,000

Internal failure cost

Downtime

6000

      Not applicable

Transportation losses due to shipment delays

8000

Internal failure cost

Supplies inspection

6000

Appraisal cost

Contracted performance testing

300,000

Appraisal cost

Pilot production runs

8,000

Not applicable

Reliability testing

9560

Appraisal cost

            Note : Have assumed that applicable downtime is the usual / planned one and not caused due to quality performance failures .

          ( Otherwise Downtime will be part of internal failure cost )

           Similarly Pilot Production run is a planned activity and is not part of any quality related cost

Thus,

Total Prevention cost ( $) = 4000 + 20000 = 24000

Total Internal failure cost ( $) = 15,000 + 8000 = 23000

Appraisal cost ( $) = 6000 + 300,000 + 9560 = 315560

Thus, Total Cost of Quality ( COQ ) = $24000 + $23000 + $315560 = $362560

“Appraisal cost” type COQ cost is the highest having a value of $315560

“Total Internal failure cost” type COQ is the lowest having a value of $23000

Total Cost of Quality = $362560

Item	Cost ( $)	Type of Quality cost
Quality training	4,000	Prevention cost
Reliability training	20,000	Prevention cost
Scrap	15,000	Internal failure cost
Downtime	6000	Not applicable
Transportation losses due to shipment delays	8000	Internal failure cost
Supplies inspection	6000	Appraisal cost
Contracted performance testing	300,000	Appraisal cost
Pilot production runs	8,000	Not applicable
Reliability testing	9560	Appraisal cost