Quality Cost Indexes

Quality Cost Indexes - Quality Cost Indexes Index numbers...

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Quality Cost Indexes Index numbers increase managers’ understanding of the data, particularly how conditions in one period compare with those in other periods. A simple type of index is called a relative index, computed by dividing a current value by a base period value. Sometimes the result is multiplied by 100 to express it as a percentage. As an example, consider the following direct labor costs per quarter for a manufactured product: Quarter Cost 1 $1500 2 1800 3 1700 4 1750 If the first quarter is the base period, the cost relative indexes expressed as percentages are computed as Quarter Cost Relative Index % 1 (1500/1500)(100) = 100 2 (1700/1500)(100) = 120 3 (1700/1500)(100) = 113.33 4 (1750/1500)(100) = 116.67 Costs and prices are often sensitive to changes in the firm. For example, if the number of units produced in each quarter differs, comparisons of direct labor costs are meaningless. However, a measure such as cost per unit would provide useful information for managers. Quality costs themselves provide little information, since they may vary due to such
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This note was uploaded on 01/29/2011 for the course MGMT 532 taught by Professor Quiggley during the Winter '10 term at Embry-Riddle FL/AZ.

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Quality Cost Indexes - Quality Cost Indexes Index numbers...

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