Barry\'s Burger Shack operates a single location at NEU selling burgers, fries a

Question

Barry's Burger Shack operates a single location at NEU selling burgers, fries and sodas to students and faculty. Revenues for 2016 were $90,000 with profits of $2,250; industry benchmarks suggest profit margins should be close to 10% of revenue. Barry had noticed an increasing number of complaints from customers over the quality of his burgers and the messiness of the soda self service area and has hired you to estimate the cost of quality for his burger business. Your analysis identified the following broad categories of quality costs in 2016:

1) One in 30 customers returned their burgers for a replacement due to burger being too greasy, being served too cool, or served with wrong ingredients; cost to replace was ~$1,600 per year

2) Approximately 5% of burgers have to be scrapped during preparation process at an estimated cost of about $1,200 per year; fries scrap cost about $600 per year

3) Barry uses a mystery shopper service to evaluate employee performance at an annual cost of $600 per year

4) Barry purchased a special grille last year for $8,000 to reduce grease in burgers and to ensure more consistent cooking temperature; Grille has an expected life of 5 years (SL depr.)

5) Barry spent $400 on training his cooking and serving staff

6) A customer sued Barry after finding a bandaid in her burger; Barry settled for $2000.

7) The self service soda area used 6,000 ounces of syrup at a cost of $0.25 per ounce for 5,000 paid sodas; each soda should use 1 ounce of syrup but the excess was spilled

8) Barry, whose annual salary with benefits was $18,000, spent approximately 15% of his time inspecting burger production operations

Required: Classify the above costs into the 4 categories of cost of quality; calculate the total cost of quality for each category.

Internal External

Prevention Appraisal Failure Failure

1 Returned burgers

2 Scrapped burgers

3 Mystery shopper

4 Special grille (depr. = $8,000/5)

5 Training staff

6 Bandaid settlement

7 Soda spllage (1,000 oz. * $0.25)

8 Barry inspection (15%*$18,000)

Total Cost of Quality $ - $ - $ - $ -

Explanation / Answer

Prevention Appraisal Internal failure External failure Total 1. Returned burgers 1600 1600 2 Scrapped burgers (1200+600) 1800 1800 3 Mystery shopper 600 600 4 Special grille (depr. = $8,000/5) 1600 1600 5 Training staff 400 400 6 Bandaid settlement 2000 2000 7 Soda spllage (1,000 oz. * $0.25) 250 250 8 Barry inspection (15%*$18,000) 2700 2700 Total Cost of Quality 2000 3300 2050 3600 10950

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