The following quality cost report came from the records of Vargas Company. Indic
ID: 2468835 • Letter: T
Question
The following quality cost report came from the records of Vargas Company. Indicate whether the company's strategy to reduce quality costs was successful or unsuccessful.
2014 2013 AmountPercentage Amount Percentage Prevention costs Engineering and desig Training and education Depreciation on prevention eqipment 58,000 ncentives and awards $136,000 13.74% $ 58,000 12,000 30,000 40,000 3.43 5.86 8.89 3.86% 0.80 1.99 2.66 34.000 88.000 Total prevention 316,000 31.92% 140,000 9.31% Appraisal costs Inventory inspection Reliability testing Testing equipment (depreciation) Supplies 50,000 32.000 22,000 14,000 5.05 3.23 2.22 1.41 50,000 30,000 24,000 16,000 3.32 1.99 1.60 1.06 Total appraisal 118.000 11.92% 120,000 7.98% Internal failure costs Scrap Repair and rework Downtime Reinspection 48,000 98.000 24,000 8,000 4.85 9.90 2.42 0.81 80,000 220,000 40,000 24,000 5.32 14.63 2.66 1.60 Total internal failure 178.000 17.98% 364.000 24.20% External failure cost 220,000 22.2 Warranty repairs and replacement Freight Customer relations Restocking and packaging 48.000 56,000 54,000 4.85 5.66 5.45 520,000 100,000 120,000 140,000 34.57 6.65 7.98 9.31 Total external failure 378,000 38.18% 880.000 58.51% Grand total $990,000 100.00% $1,504,000 100.00%Explanation / Answer
Solution. As per the report given, it can be clearly stated that the company's strategy to reduce the quality costs was a vey successful one. The company increased the costs significantly for prevention by $176000 and which resulted in a slight decline in appraisal costs. In fact Internal Failure costs and External Failure costs have been bought down to great extent. These costs have almost halfed of what was incurred previously. Thus the company's strategy was a successful one.
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