ch14 - Cost Management ACCOUNTING AND CONTROL HANSEN...

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Unformatted text preview: Cost Management ACCOUNTING AND CONTROL HANSEN & MOWEN 14-1 14 Quality Cost Management Quality 14-2 Costs of Quality 1 A quality product or service is one that meets or exceeds customer expectations. conformance Quality of is a measure of how a product meets its specifications. 14-3 Costs of Quality Distribution of Color Density of Sony Television Sets 1 14-4 Costs of Quality 1 Defining Quality Costs 1) Prevention costs 2) Appraisal costs 3) Internal failure costs 4) External failure costs 14-5 Costs of Quality Examples of Quality Costs by Category 1 14-6 Costs of Quality Examples of Quality Costs by Category (cont’d) 1 14-7 Costs of Quality 1 Hidden Quality Costs are opportunity costs resulting from poor quality. The Multiplier Method The Market Research Method The Taguchi Quality Loss Function 14-8 Costs of Quality 1 The multiplier method assumes that the total failure cost is simply some multiple of measured failure costs: Total external failure cost = k(Measured external failure costs) where k is the multiplier effect If k = 4, and the measured external failure costs are $3 million, then the actual external failure costs are estimated to be $12 million. 14-9 Costs of Quality The market research method uses formal market research methods to assess the effect of poor quality on sales and market share. Customer surveys and interviews with members of a company’s sales force can provide significant insights into the magnitude of a company’s hidden costs. Market research results can be used to project future profit losses attributable to poor quality. 1 14-10 Costs of Quality 1 The Taguchi loss function assumes any variation from the target value of a quality characteristic causes hidden quality costs. Furthermore, the hidden quality costs increase quadratically as the actual value deviates from the target value. 14-11 Costs of Quality 1 The Taguchi Quality Loss Function L(y) = k(y – T)² k = A proportionately constant dependent upon the organization’s external failure cost structure y = Actual value of quality characteristic T = Target value of quality characteristic L = Quality loss 14-12 Costs of Quality The Taguchi Quality Loss Function 1 14-13 Costs of Quality Quality Loss Computation Illustrated 1 14-14 Basic Concepts of the Balanced Scorecard Quality Cost Report 2 Actual sales of $5,000,000. 14-15 Basic Concepts of the Balanced Scorecard Quality Cost Categories: Relative Contribution Graphs 2 14-16 Basic Concepts of the Balanced Scorecard AQL Quality Cost Graph 2 14-17 Basic Concepts of the Balanced Scorecard Zero-Defects Quality Cost Graph 2 14-18 Quality Cost Information and Quality Decision Making Decision 3 Strategic Pricing Revenues (1,000,000 @ $20) Cost of goods sold Operating expenses Product-line income $20,000,000 -15,000,000 - 3,000,000 $ 2,000,000 14-19 Quality Cost Information and Quality Decision Making Decision 3 Strategic Pricing Data from the low-level instruments are: Quality costs (estimated): Inspection of materials Scrap Rejects Rework Product inspection Warranty work Total estimate $ 200,000 800,000 500,000 400,000 300,000 1,000,000 $3,200,000 14-20 Quality Cost Information and Quality Decision Making Decision 3 Reports: New Product Analysis, Project #675 Projected sales potential: 44,000 units Production capacity: 45,000 units Unit selling price: $60 Unit variable costs: $40 Fixed costs: Product development $ 500,000 Manufacturing 200,000 Selling Projected break-even: 50,000 units 300,000 Decision: Reject Total Reason(s): The break-even point is greater than the production $1,000,000 well as the projected sales volume. capacity as 14-21 Quality Cost Information and Quality Decision Making Decision ISO 9000 Standards 3 14-22 Controlling Quality Costs 4 The Total Quality Approach Zero-defect standards reflects a philosophy of total quality control and calls for products and services to be produced and delivered that meet the targeted value. 14-23 Controlling Quality Costs 4 The Total Quality Approach 1. Progress with respect to a current-period standard or goal (an interim standard report) 2. The progress trend since the inception of the quality-improvement program (a multiple-period trend report) 3. Progress with respect to the long-range standard or goal (a long-range report) 14-24 Controlling Quality Costs Interim Quality Performance Report 4 14-25 Controlling Quality Costs Interim Quality Performance Report 4 14-26 Controlling Quality Costs Interim Quality Performance Report 4 14-27 Controlling Quality Costs Interim Quality Performance Report 4 14-28 Controlling Quality Costs Multiple-Period Trend Graph: Total Quality Costs 4 14-29 Controlling Quality Costs Multiple-Period Trend Graph: Individual Quality Costs Categories 4 14-30 Controlling Quality Costs Multiple-Period Trend Graph: Relative Quality Costs 4 14-31 Controlling Quality Costs Long-Range Quality Performance Report 4 14-32 Controlling Quality Costs Long-Range Quality Performance Report 4 14-33 Controlling Quality Costs Long-Range Quality Performance Report 4 14-34 Controlling Quality Costs Long-Range Quality Performance Report 4 14-35 End of Chapter 14 Chapter 14-36 ...
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