COST MANAGEMENT

Accounting & Control

Hansen▪Mowen▪Guan

Quality and Environmental

Cost Management

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 Costs of Quality
• Quality-linked activities
– Activities performed because poor quality may
or does exist
– Control activities
• performed by an organization
• to prevent or detect poor quality
– Failure activities
• Performed by an organization or its customers
• In response to poor quality

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 Costs of Quality
• Categories of quality costs
– Prevention costs: incurred to prevent poor quality in
product or services from being produced
– Appraisal costs: Incurred to determine whether
products and services are conforming
• Product acceptance: sample finished goods
• Process acceptance: sample goods while in process
– Internal failure costs: incurred because products or
services do not conform; discovered prior to delivery
– External failure costs: incurred because products or
services do not conform; discovered after delivery
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Costs of Quality

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 Costs of Quality
• Quality cost
– Observable
• Available from the accounting records
– Hidden
• Opportunity costs resulting from poor quality
• Estimating hidden quality costs
– The multiplier method
– The market research method