Costs of quality. (CMA, adapted) Osborn, Inc., produces cell phone equipment. Am
ID: 2477581 • Letter: C
Question
Costs of quality. (CMA, adapted) Osborn, Inc., produces cell phone equipment. Amanda Westerly. Osborn's president, decided to devote more resources to the improvement of product quality after learning that her company had been ranked fourth in product quality in a 2011 survey of cell phone users. Osborn's quality-improvement program has now been in operation for 2 years, and the cost report shown here has recently been issued. Semi-Annual COQ Report, Osborn, Inc. (in thousands) For each period, calculate the ratio of each COQ category to revenues and to total quality costs. Based on the results of requirement 1, would you conclude that Osborn's quality program has been successful? Prepare a short report to present your case. Based on the 2011 survey, Amanda Westerly believed that Osborn had to improve product quality. In making her case to Osborn management, how might Westerly have estimated the opportunity cost of not implementing the quality-improvement program?Explanation / Answer
1.
2. On the results of the requirement 1, we could conclude that Osborn's quality program has been successful in improving its quality as there is a higher increase in the revenue per quality cost incurred. On June 12, the ratio shows increase in revenue of $3.92 per dollar spended on quality, on Dec 12, it is 4.23 and on June 13 and Dec 13, it is 5.64 and 7.47 respectively.
3. Based on the 2011 survey, Osborn had to imporve product quality. Thus, Osborn found an opportunity in the imporvement on the failures both internally and externally and thus the cost incurred on the both failures internally and externally has reduced from $353 to $180 and from $776 to $253 in internally and externally failures respectively. The improvement in the Appraisal costs is also reduced remarkably and shows the improvement in the quality.
30/6/12 31/12/12 30/6/13 31/12/13 Ratio revenues to total quality costs 8220 / 2096 = 3.92 9180 / 2168 = 4.23 9260 / 1641 = 5.64 9050 / 1211 = 7.47