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"i
f;herpter 14 Quality and Environmental
Cost Management
1,
nc'n-value-added
quality costs ancl select the right activities, a bonus pool is established
rihring to rcductiotr of quality costs. The bonus pool is equal to I0 percent of the total
rcduction in quality costs.
.
Current quality costs and the costs of these six activiries are given in the follow-
ing talrle. Each activity is added sequentially so thar its effect orithe .or, .rr.gori.,
can be assessed. Ilor example, after quality training is added, the control costs increase
to $320,000, and the failure costs drop ro
$1,045,000. Even though the activities are
presented
sequentially, they-are totally independent of each othcr. T'Lus, only beneficiai
activities need to be selected.
@)
'v
Control Costs Fai.lwre Costs
Current quality costs
Qualiry
training
Process control
Product inspection
Supplier evaluarion
Prototype testing
Engineering
redesign
$ 160,000
320,000
520,000
600,000
720,000
960,000
1,000,000
$1,440,000
1,040,000
720,000
656,000
200,000
120,000
40,000
14-7
t03
2009 2010
Sales
Scrap
Rework
Training program
Consumer complaints
Lost sales, incorrect labeling
Test labor
Inspection labor
Supplier evaluation
$600,000
15,000
20,000
5,000
10,000
8,000
12,000
25,000
15,000
$600,000
I5,000
I0,000
6,000
5,000
9,000
24,000
I3,000
'r{equired:
1' Identify the control activities that should be implemented, and calcuiare the roral
qualiry costs,associated with this selection. Assume that an activity is selected only if
it increases the bonus poo[.
2. Given thc activ'ities selected in Requirement I, calculate the followtng:
a. Jhe redtrction in total quality costs
b. The percentage distribution for control and failure costs
c.
-The
amount for this year,s bonus pool
3. suppose that a quality engineer comprained about the gainsharing incentive sys-
tern. Basically, he argued that the bonus should be based only on reductions of
l-ailure and appraisal costs. In this rvay, investment in prevention activities would be
encouraged, and evenrually, failure and appraisal costs would be eliminated. After
eliminating the non-value-added costs, focus could then be placed on the level of
prevention costs. If this approach were adopted, what activities would be selected)
Do yon agree or disap;ree with this approachl Explain.
In 2009, l-ru-Delite Frozen Desserts, Inc., instituted a quality improvemenr program.
At the end of 2010, the management of the corporation requested a report to iho- th"
amount savc'd by the measrtres taken during the year. The actual sales and quality costs
tor 2009 and 2010 are as follows:
Trend,
Performance
Re