1. Backwoods America, Inc. produces expensive water-repellant, down-lined parkas
ID: 425930 • Letter: 1
Question
1. Backwoods America, Inc. produces expensive water-repellant, down-lined parkas. The company implemented a total quality management program in 2004. Following are quality-related accounting data that have been accumulated for the period 2005-2009.
2005
2006
2007
2008
2009
Quality Costs ($000)
Prevention
3.2
10.7
28.3
42.6
50
Appraisal
26.3
29.2
30.6
24.1
19.6
Internal failure
39.1
51.3
48.4
35.9
32.1
External Failure
118.6
110.5
105.2
91.3
65.2
TOTAL
187.2
201.7
212.5
193.9
166.9
Accounting Measures ($000)
Sales
2700.6
2690.1
2705.3
2810.2
2880.7
Mnfg costs
841.8
846.8
849.4
872.2
871
Mnfg/Sales %
31.2%
31.5%
31.4%
31.0%
30.2%
Based on the data above, how do you characterize the company’s quality strategy? Has it been effective? Be sure to base your answer on the quantitative analysis of the data.
2005
2006
2007
2008
2009
Quality Costs ($000)
Prevention
3.2
10.7
28.3
42.6
50
Appraisal
26.3
29.2
30.6
24.1
19.6
Internal failure
39.1
51.3
48.4
35.9
32.1
External Failure
118.6
110.5
105.2
91.3
65.2
TOTAL
187.2
201.7
212.5
193.9
166.9
Accounting Measures ($000)
Sales
2700.6
2690.1
2705.3
2810.2
2880.7
Mnfg costs
841.8
846.8
849.4
872.2
871
Mnfg/Sales %
31.2%
31.5%
31.4%
31.0%
30.2%
Explanation / Answer
The company’s quality strategy can be assessed in this case, using quality cost index and manufacturing/sales %.
Quality cost index = (Total quality cost / Total sales) X 100
The lower the values, the better the company is performing.
Using the given data, we calculate Quality cost index shown in row 3 of the below table.
2005
2006
2007
2008
2009
Quality Costs
187.2
201.7
212.5
193.9
166.9
Sales
2700.6
2690.1
2705.3
2810.2
2880.7
Quality Index
6.93
7.50
7.85
6.90
5.79
Mnfg/Sales %
31.20
31.50
31.40
31.00
30.20
These numbers, do not show consistent trend in the given years. However, it can be used to compare successive years to see if there was any improvement over the past year. Quality index increases from 2005-07 and then decreases (betters) by 2009. We can also notice a direct correlation between quality index and Manufacturing cost/sales figure.
2005
2006
2007
2008
2009
Quality Costs
187.2
201.7
212.5
193.9
166.9
Sales
2700.6
2690.1
2705.3
2810.2
2880.7
Quality Index
6.93
7.50
7.85
6.90
5.79
Mnfg/Sales %
31.20
31.50
31.40
31.00
30.20
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