Carli Schiffner, president of Roo Inc. has been concerned about the growth in co
ID: 2372566 • Letter: C
Question
Carli Schiffner, president of Roo Inc. has been concerned about the growth in costs over the last several years. Joe asked the controller to perform an activity analysis to gain a better insight into these costs. The activity analysis revealed the following:
Activity Activity Cost
Correcting invoice errors (invoices have been printed-not mailed) $15,000
Disposing of scrap 39,000
Shipping late production with Federal Express (at company's cost) 33,000
Final inspection 24,000
Inspecting work in process 30,000
Preventative machine maintenance 18,000
Responding to customer quality complaints 18,000
Total $177,000
Using this information prepare a cost of quality report. Assume sales for the period were $650,000.
Given your results in the report above, what would you suggest to Carli as a top priority? Why?
Explanation / Answer
Total Activity cost: $177,000 which is substantial amount.
A quality cost report details theprevention costs, appraisal costs, andinternal failure cost and external failure cost that arise from company's current level of defective products or services. Companies often construct a quality cost report that provides an estimate of the financial consequences of the company's current level of defects.
Suggestions/ Recommendations
Roo Inc. can reduce its total quality cost by focusing its efforts on prevention and appraisal. The cost savings from reduced defects usually swamp the costs of the additional prevention and appraisal efforts.
Cost such as Correcting invoice errors, Responding to customer quality complaint can be easily avoided by providing quality services.