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Cost Accounting
Submitted By: Group J
1. Kamrul Hasan 18425010914
2. Md. Rony 18425010915
3. Md. Rajib Shek 18425010916
4. Md. Abdullah 18425010919
5. Md. Selim Mia 18425010920
6. Majharul Sheikh 18425010921
7. Md. Arif Hossain 18425010922
8. Khadija Akter 18425010923
9. Habiba 18425010927
10. Aysha Akter 18425010928
11. Sadia Afrin 18425010930
12. Md. Nur Islam 18425010931
13. Md. Al Amin Supto 18425010932
14. Md. Sazzat Hossain Shuvo 18425010933
15. Md. Apu Raihan 18425010934
16. Airin Sultana 18425010935

Submitted To:
Rupam Chandra Banik
 Quality Costing

❑ Definition of Quality
❑ Costs of Quality
❑ Prevention Costs
❑ Appraisal Costs
❑ Internal Failure Costs & External Failure Costs
❑ Measuring & Controlling Quality Costs
❑ Distribution of Quality Costs
❑ Quality Costs Reports
❑ Uses of Quality Costs Information
❑ International Aspects of Quality : The ISO Standards
 Definition of Quality

In general, the quality can define as degree of customer satisfaction.

Quality means those features of products which meet customers needs

and thereby provide customers satisfaction.

As per, ISO 8402 : 1994,

Standard quality is defined as “The totality of characteristics of an
entity that bear on its ability to satisfy stated and implied needs”.

✓ Stated Needs:
Good quality ball point pen with metal body.

✓ Implied Needs:
Obvious needs like for pen – Ability to write.
 Costs of Quality

❑ Quality–linked activities are those activities performed because poor quality may
or does exist. The costs of performing these activities are refereed to as costs that
exist because poor quality may or does exist.

Quality Costs

Conformance Non-Conformance

Prevention Appraisal Internal failure External failure

 Prevention Costs

➢ The cost incurred to avoid or minimize the number of defects as first place are known
as prevention costs.

➢ Cost of preventing defects rather than finding and removing.

Examples:
❖ Quality Engineering.
❖ Quality Training.
❖ Quality Audits.
❖ Supplier Evaluation.
 Appraisal Costs

➢ Identify defects before shipping to customers.

➢ All costs are associated with activities that are performed during manufacturing
process.

Examples:
❖ Inspection & Testing materials.
❖ Product acceptance.
❖ Process acceptance.
❖ Supplier verification.
 Internal Failure Costs

➢ Remove defects from the products before shipping them to customers.

➢ Arise from defects caught internally and dealt with by repairing the defective
items.

Examples:

❖ Rework
❖ Scrap
❖ Repair
❖ Design Change
❖ Retesting
 External Failure Costs

➢ If defective products have been shipped to customers , external failure cost

arise.

Examples:
❖ Revenue loss
❖ Warranties
❖ Discount due to defects
❖ Returns & Allowance
❖ Products Insurance
❖ Product Liability
 Controlling Quality Costs

❑ The process of inspecting products to ensure that they meet the required quality
standards known as quality control. Quality control is based on the concept of
“Defect Detection”.
Examples of Activities:
❖ Establishing specification, standards and tolerance for product and processes.
❖ Inspecting (input goods and output products).
❖ Monitoring production process.
❖ Identifying defective items or identifying inefficiencies in process.

So, we can see that quality control is a reactive approach.

Benefits of Quality Control:

❑ Minimize description to production.
❑ Sub-Standards output spoiled before it reaches the customers.
❑ Applies a consistent standard to quality.
 Measuring Quality Costs

❑ Cost of quality data can be measured and presented in many different wages.

➢ % age of sales.
➢ % age of profits.
➢ % age of manufacturing cost.
➢ BDT per direct labor hour.
➢ BDT per unit of product.
 Distribution Cost of Quality

Prevention cost 20% 15%

Appraisal cost 15%
15%
Internal failure cost 50% 50%
External failure cost 15% 20%
Total Quality Costs 100%

➢ The initial impact of increasing expenditures on prevention might manifest as

an increase in total quality costs the apparent reduction in internal and external
failure costs is a result of an increase in total expenditures.
 Quality Cost Reports

Particular 2014 2013

Amount Percentage Amount Percentage
Prevention Costs:
Engineering and design $136,000 13.74% $58,000 3.86%
Training and education 34,000 3.43 12,000 0.80
Depreciation on prevention equipment 58,000 5.86 30,000 1.99
Incentives and awards 88,000 8.89 40,000 2.66
Total Prevention 316,000 31.92% 140,000 9.31%

Appraisal Costs:
50,000 5.05 50,000 3.32
Inventory inspection
32,000 3.23 30,000 1.99
Reliability testing 22,000 2.22 24,000 1.60
Testing equipment(depreciation)
Supplies 14,000 1.41 16,000 1.06

Total Appraisal 118,000 11.92% 120,000 7.98%

Internal Failure Cost:
Scrap $48,000 4.85% $80,000 5.32%
Repair and rework 98,000 9.90 220,000 14.63
Downtime 24,000 2.42 40,000 2.66
Reinspection 8,000 0.81 24,000 1.60
Total Internal failure 178,000 17.98% 364,000 24.20%

External Failure Cost:

Warranty repairs and replacement
220,000 22.22 520,000 34.57
Freight 48,000 4.85 100,000 6.65
Customer relation 56,000 5.66 120,000 7.98
Restocking and packaging 54,000 5.45 140,000 9.31

Total External failure 378,000 38.18% 880,000 58.51%

$990,000 100.00% $1504,000 100.00%

Grand Total
 Use of Quality Cost Information

➢ To identify profit opportunities

➢ To make capital budgeting and decision
➢ To improve purchasing and supplier related costs.
➢ To identify west in overhead caused by activities not required by the customers
➢ To identify redundant systems.
➢ To determine whether quality costs are properly distributed.
➢ To establish goals for budgets and profit planning
➢ To identify quality problems.
➢ As a management tool for comparative measures I-O.
➢ As a strategic management tool to allocate resource.
➢ As an objective performance appraisal measure.
➢ Helping identify relative importance of quality problems.
➢ Evaluating capital expenditure proposals.
 International Aspects of Quality : The ISO Standard

Just as a company assesses the quality of its suppliers, that same company may supply
other companies that require vendor certification of quality. A relatively new program
called ISO 9000 has evolved in response to the need for standardized set of procedures
for supplier quality verification.

ISO 8402 : Quality vocabulary

ISO 9000 : Quality management and quality assurance standards – guidelines for
selection and use.
ISO 9001 : Quality systems – model for quality assurance in design / development,
production, installation and servicing.
ISO 9002 : Quality systems – model for quality assurance in production and
installation.
ISO 9003 : Quality systems – model for quality assurance in final inspection and
test.
ISO 9004 : Quality management and quality system elements – guideline.
Thank You