CALCULATING LOST PROFITS

Profit Lost by Selling Units as Defects = (Total Defective Units – Number of Units Reworked) x (Profit for
Good Unit – Profit for Defective Unit)

Z = (D –Y) (P1 – P2)

CALCULATING TOTAL INTERNAL COSTS OF FAILURE

Rework Cost = Number of Units Reworked x Cost to Rework Defective Unit

R = (Y) (r)

Cost of processing Customer Returns = Number of defective Units returned x Cost of a Return

W = (Dr) (w)

Total Failure Cost = Profit Lost by Selling Units as Defects + Rework Cost + Cost of Processing Customer
Returns

F= Z + R + W

CALCULATING THE TOTAL QUALITY COST

Total Quality Cost = Defect Control Cost + Total Failure Cost

T = (Prevention Cost + Appraisal Cost) + Total Failure Cost

T=K+A+F

Prevention and appraisal costs are total estimated amounts; no formulas are appropriate. As the cost of
prevention rises, the number of defective units should decline. Additionally, as the cost of prevention
rises, the cost of appraisal should decline; however, appraisal cost should never become zero.