Translated from Indonesian to English - www.onlinedoctranslator.

com

RESUME
QUALITY COST MANAGEMENT AND JUST IN TIME

Submitted to fulfill one of the assignments in the Management Accounting course

Lecturer: Andry Arifian Rachman, Dr., SE, M.Si., Ak., CA., ACPA.

Arranged by :

EKA FALAH RAMADHAN

231631021

WIDYATAMA UNIVERSITY

MASTER OF ACCOUNTING PROGRAM

BANDUNG

2023
I. Quality Cost Management

A. Quality (Quality)

Quality is a product and service that goes through several process stages by

taking into account the value of a product and service without any deficiency in

the value of a product and service, and produces products and services that meet

the high expectations of customers.

To achieve the desired product quality, quality standardization is

needed. This method is intended to ensure that the products produced
meet predetermined standards so that consumers will not lose
confidence in the product in question. Marketers who do not pay
attention to the quality of the products offered will suffer consumer
disloyalty so that product sales will tend to decline.

Product quality is the ability of a product to perform its function,

this includes overall durability, reliability, accuracy, ease of operation
and repair of the product as well as other product attributes.

Based on the explanation above, it can be concluded that product

quality is the totality of goods and services related to consumer desires,
the superiority of which is that the product is worth selling according to
customer expectations. Product quality is formed by several indicators,
including ease of use, durability, clarity of function, diversity of product
sizes, and others.

Consumers always evaluate the performance of a product, this can

be seen from the product's ability to create product quality with all its
specifications so that it can attract consumer interest in purchasing the
product. Based on the discussion above, it can be said that the quality
provided by a product can influence consumer purchasing decisions
regarding the products offered.
B. Product Quality Dimensions

According to Tjiptono (2008), quality reflects all dimensions of product

offerings that produce benefits for customers. The quality of a product, whether

in the form of goods or services, is determined through its dimensions.

The dimensions of product quality according to Tjiptono (2008) are:

a) Performance, related to the basic operating characteristics of a

product.
b) Durability, which means how long or how old the product in
question lasts before the product must be replaced. The greater
the frequency of consumer use of a product, the greater the
product's power.
c) Conformance to specifications, namely the extent to which the basic
operating characteristics of a product meet certain consumer
specifications or no defects are found in the product.
d) Features are product characteristics designed to enhance product
function or increase consumer interest in the product.

e) Reliability, is the probability that the product will work satisfactorily

or not within a certain time period. The smaller the possibility of
damage, the more reliable the product is.
f) Aesthetics, related to how the product looks.
g) Perceived quality, often said to be the result of using indirect
measurements because there is a possibility that consumers do
not understand or lack information about the product in question.

h) Serviceability, including speed and ease of repair, as well as the

competence and friendliness of service staff.
Then, according to Vincent Gaspersz (2005 in Alma, 2011) product
quality dimensions consist of:
a) Performance, namely the main operating characteristics of the core product.

b) Additional characteristics or privileges (features), namely characteristics

 secondary or complementary.

c) Reliability, namely the small possibility of damage or failure to use.

d) Conformance to specifications, namely the extent to which the

design and operating characteristics meet previously established
standards.
e) Durability, which is related to how long the product can continue to
be used.
f) Serviceability, including speed, competence, comfort, easy repair,
satisfactory complaint handling.
g) Aesthetics, namely the product's appeal to the five senses.

According to Philip Kotler (2009) there are dimensions of product quality,

including:

a) Characteristics (Features)

Characteristics are properties that support the basic function of a product.

Characteristics are competitive tips for differentiating a company's products. In

its implementation, characteristics are defined as customer perceptions to

differentiate a business entity's products from competitors which are used to

support the basic function of the product.

b) Performance (Performance)

This dimension indicates the level of product operation or basic usability of a

product. In its implementation, performance is defined as the customer's

perception of the basic benefits of the product they consume.

c) Conformity
Conformity measures the extent to which a product's design and operating

properties approach the intended standards. In its implementation,

conformity is defined as the customer's perception of the target

specifications promised for the product they consume.

d) Durability
Durability reflects a measure of the expected operating life of a product

under normal and/or severe conditions. Durability can also be interpreted as

a measure of a product's life expectancy. In its implementation, durability is

defined as the customer's perception of the economic life of the product to

be consumed.

e) Reliability
Reliability measures the probability that a product will not fail over a certain

period of time. In its implementation, constraints are defined as the customer's

perception of product reliability which is expressed by the warranty period or

guarantee that the product will not be damaged before the specified expiration

date.

f) Ease of repair (Service Ability)

This dimension reflects the ability to provide service for the
product, which includes repairs and satisfactory complaint
handling. In its implementation, improvement or service is defined
as the customer's perception of the services provided by the
business entity or sales agent to the customer.

g) Beauty (Aesthetics)
Beauty shows how the product looks or appeals to buyers. This
dimension can be used as a weapon to differentiate two products
that look the same. In its implementation, beauty is defined as the
customer's perception of the product's attractiveness.

According to Hansen, Mowen (2001: 963) defines quality specifically

into 8 (eight) quality dimensions, namely:
a)Performance: refers to the consistency and goodness of a product.

b)Aesthetics: in the form of a product's attractiveness based on its appearance.

c)Serviceability: the ability of the product to provide services.

d)Features: complementary characteristics that differentiate a product from

other products that can give a different impression.

 e)Reliability; the reliability of a product if used for a certain time.
f)Durability; The level of product durability is described by the product's

economic life or how long the product provides economic benefits.

g)Conformance,product conformity with predetermined specifications.

h)Fitness for use,conformity of the product with its functions as

advertised.
Based on the dimensions above, it can be concluded that a quality
dimension is a requirement for a product's value to enable it to satisfy
customers according to expectations, while product quality dimensions
include performance, aesthetics, features, reliability and also suitability.

C. Quality Type

According to Hansen and Mowen (1994; 773) there are two types of quality, namely:

a)Quality of Design(Design Quality)

"Quality of design a function of product specifications"Design
quality is a detail or product specification that characterizes a
product on the market. If the product cannot meet the needs and
desires of consumers, then the product no longer fulfills itquality of
design.Products with higher design quality reflect higher production
costs resulting in higher selling prices, because these products will
provide greater satisfaction to consumers.
b)Quality of Conformance(Quality of Conformity)

"Quality of conformance is a measure of how a product meets is

requirements or specification. If the product meets all of the designed
specifications, it is fitness for use"Conformity quality is a measure of
how far the final product conforms to predetermined standards or
specifications. If the product is able to meet all specifications then the
product is a high quality product.
Of these two types of qualityquality of conformancewhich needs
greater attention from management, because most of the problems
faced by business entities, such as waste of raw materials, labor and
time, are caused by the incompatibility of the final product with
specifications resulting in business entities losing sales, increasing
costs and decreasing profitability.

D. Quality Costs
Quality Costs or in English often called Quality Costs are costs that
arise in handling Quality problems, both in order to improve Quality
and costs that arise due to poor Quality (Cost of Poor Quality). In other
words, Quality Costs are all costs that arise in Quality Management.

E. Type of Quality Cost

According to Hansen and Mowen (2001:966) quality costs can be grouped into

4 (four) categories, namely:

a)Prevention Costs
Prevention costs are costs that arise to prevent poor quality
in the products or services produced. As the costs of
prevention increase, we would expect that the costs of failure
decrease. For example, preventive costs are quality
engineering, quality training programs, quality reporting,
quality planning, supplier evaluation and supplier selection,
quality audits, quality circles, test fields, and design reviews.
b)Appraisal Costs
Appraisal costs are costs incurred to determine whether a
product or service meets customer needs or their specifications.
Included in these examples are inspection and testing of raw
materials, packaging, inspection, supervision of assessment
activities, product acceptance, process acceptance, equipment
measurements, and outside validation.
c) Internal Failure Costs(internal failure costs)
Internal failure costs are costs that arise because products and
services do not match customer specifications or needs. These
nonconformities are detected before products and services
 sent to outside parties. This is a failure detected by the
assessment activity. Examples of these costs are scrap materials,
rework, delay time, re-inspection, re-testing, and design changes.
These costs do not exist if the defective item does not exist.

d) External Failure Costs(external failure costs)

Internal failure costs are costs that arise because products
and services fail to meet requirements or meet customer
needs after being delivered to customers.
Currently, many companies use quality cost measures as indicators
of the success of quality improvement programs, which can be linked
to other measures.
a) Quality costs compared to sales value (percentage of total quality
costs to sales value). The lower this value indicates the worse the
quality improvement program.
b) Quality costs compared to profits (percentage of total quality costs
to profit value). The lower this value indicates the greater the profit,
the worse the quality improvement program.
c) Quality costs compared to cost of goods sold. This comparison is measured
based on the percentage of total quality costs to the value of the cost of
goods sold. The lower the value indicates the better the quality
improvement program.

F. Quality Cost Report and Its Uses

A quality cost reporting system is important if the organization is
serious about a quality improvement program. Quality Cost Reports can
be used as business parameters for companies and provide important
information for management in making decisions for company goals.
Tjiptono et al. (2003: 40) detail the various benefits of the Quality Cost
Report into severalpoint,among others:
a) identify profit opportunities (cost savings can increase profits),
 b) make a decisioncapital budgetingand other investment decisions,
c) reduce purchasing costs and costs related to suppliers,
d) identify waste in activities that customers do not want,

e) identify quality problems and the presence of redundant systems,

f) determine whether quality costs have been distributed appropriately,
g) determining objectives in budget and profit planning,
h) as a tool for measuring comparisons betweeninputwithoutput,
i) as one of the Pareto analysis tools to differentiate betweenvital few
Andtrivial many,
j) as a strategic management tool for allocating resources in the formulation

and implementation of strategies,

k) as an objective performance assessment measure.

G. Types of Quality Cost Reports There are 4

(four) types of quality cost reports:

a) Interim standard report

This report is used to evaluate the company's ability to meet

budgeted quality costs. Managers use this report to compare actual
quality costs with those budgeted for the period.

b) Reporttrendone period
This report shows progress related to quality performance in
recent years. Management can gain additional insight by comparing
current year performance and actual quality costs incurred in
previous years.
c) Reporttrenddouble-period
This report provides a graph illustrating changes in quality since the
quality improvement program was first implemented until this year. With
this report, it is hoped that management will obtain information trend
comprehensive assessment of quality improvement programs.
 d) Long term reports
These reports show progress against standards or long-term goals. This
long-number report compares the current period's actual quality costs
with the allowable costs if the zero defects standard is achieved (assuming
sales levels are the same as the current period).
H. Quality Cost Information Reporting

A quality cost reporting system is important if the organization/

company is serious about quality improvement and control costs. The
first step in creating such a system is to report actual current quality
costs. A detailed list of actual quality costs per category will provide
two important pieces of information:

a) Shows how much is spent on each quality cost category and its
impact on profits.
b) Shows the distribution of quality costs by category, allowing managers to
assess the relative importance of each category.

I. Quality Cost Report

The financial significance of quality costs can be assessed more

easily by expressing these costs as a percentage of actual sales. There
are two views about optimal quality costs, namely:traditional view,
which requires the existence of an acceptable level of quality, and the
view adopted by contemporary companies, referred to as total quality
control (total quality control). Each view offers managers information
about how quality costs should be managed.
II. Just In Time

A. Definition

Just In Time or often abbreviated as JIT is a production system that

is used to meet customer needs on time according to the desired
quantity. The aim of the Just In Time (JIT) production system is to avoid
excess quantity/quantity in production (overproduction), excessive
inventory (excess inventory) and also waste in waiting time (waiting).
With the JIT system, we can overcome 3 wastes (overproduction, excess
inventory and waiting). Just In Time is an approach to identify and
eliminate all sources of waste in production activities by providing the
right balance of production at the right place and time.

The background to the emergence of Just In Time is the waste of

labor, space and production time that occurs due to inventory,
resulting in higher production costs. With Just In Time companies can
reduce product costs per unit, improve product quality and increase
competitiveness in the market both domestically and abroad.

B. Characteristics

Just In Time characteristics include:

a) Maintain the minimum amount of inventory possible

b) Maintain high product quality
c) Purchasing materials and producing goods is only carried out if
needed
d) Building a disciplined scheduling system
e) Maintain employees who have several skills
f) Building a flexible manufacturing system
g) Machine maintenance costs are simple and relatively cheap
 Purchases in Just In Time are:

a) Purchase in small units with frequent deliveries. Prices include one

selected offer for certain components in close geographic areas
and with long-term contracts
b) In supplier assessment, emphasis is placed on product quality, delivery

performance and price and there is no acceptable percentage of rejection from

suppliers (because the quality of the components received is of high quality).

c) In the case of incoming component inspections, component inspections are reduced

and eliminated.

d) In determining the transportation method, attention is paid to

transportation figures and timely delivery, and the delivery
schedule is left to the buyer.
e) In terms of determining product specifications, buyers trust performance specifications

more than product design, suppliers are encouraged to be more innovative.

f) In the case of clearing work, less time is used for clearing

g) Delivery times and quantity levels can be changed by telephone

notification only.
h) In terms of packaging, small standard containers are used to
ensure proper quality and exact specifications
C. The Impact of Just In Time on Cost Traceability and Production
Costs

The impact and success of the Just In Time system is to limit

production waste. Production waste can be eliminated on a large scale,
namely in the form of quality improvements and lower production costs.

The benefits of Just In Time are divided into 2 categories, namely:

a) Tangible benefits

1. Purchase turnover increases.

2. Delivery accuracy increases.
3. Late delivery time is reduced.
 4. The percentage of scrap costs to purchasing dollars is reduced.

5. Expedition work is reduced.

b) Intangible benefits

1. Improve product quality

2. Successfully encourage suppliers to meet the required quality
3. Improve productivity
4. Better production schedule
5. Reduce the need to inspect incoming goods
6. Increase efficiency
7. Improve competitive composition
8. Improve product design
9. Improve morality in production
10. Reduce clerical work.
D. Advantages of the Just In Time Production System

There are many advantages that can be enjoyed in implementing a Just In Time
production system, including the following:

a) Low inventory or stock level, thereby saving storage space and

related costs such as rental costs and insurance costs.

b) Production materials are only obtained when needed so they only

require low working capital.
c) With a low inventory level, the possibility of waste due to products
that are out of date, past expiration and damaged or obsolete will
be lower.
d) Avoid the accumulation of unsold finished products due to sudden
changes in demand.
e) Requires emphasis on the quality of production materials supplied
by the Supplier so as to reduce inspection and rework time

E. Weaknesses of the Just In Time Production System

Even though there are many advantages that can be obtained, this Just In Time
Production System still has weaknesses, namely:
a) The Just In Time Production System has no tolerance for errors or “
Zero tolerance for mistakes” so it will be very difficult to carry out
repairs/rework on production materials or finished products that
are defective. This is because the inventory level of production
materials and finished products is very minimum.
b) Very high dependence on Suppliers for both quality and accuracy of
delivery which is generally outside the scope of the manufacturing
company concerned. Delays in delivery by one supplier will result
in delays in all planned production schedules.

c) Transaction fees will be relatively high due to high transaction frequency.

d) The manufacturing company concerned will find it difficult to meet
the suddenly high demand because in reality there are no more
finished products.