QUALITY COSTING

GROUP MEMBERS
POOJA PAREKH
DIVYESH PATEL
UNISH SHAIKH
 QUALITY COSTING
• As organization strive to increase their bottom line
performance in the highly competitive environment,
they tend to forget to integrate two important
planning activities strategic and quality planning.
• This is likely due to a lack of understanding of the
cause-effect relationship among strategy, quality,
productivity, profitability, and competitiveness.
• Quality costing is used as a tool to measure the
efficiency of the entity.
 QUALITY AS A COMPETITIVE TOOL
• The American Society for Quality Control defines quality as
the total features and characteristics of a product or a
service made or performed according to satisfy customers at
the time of purchase and during the use.
• Two basic aspects of quality are quality of design and
conformance quality.
• Quality of design refers to how closely the characteristics of
a product or service meet the needs and wants of
customers.
• Conformance quality refers to the performance of product or
service relative to its design and product specification.
 CATAGORIES OF QUALITY COSTING
• There are four primary quality cost categories:
• Preventive cost category
• Appraisal cost category
• Internal failure cost category
• External cost category

Preventive cost category-The experience gained from the identification

elimination of specific causes of failure and their cost are utilized to
prevent the recurrence of the same or similar failures in other
products and services.
CATAGORIES OF QUALITY COSTING
Appraisal cost category-The first responsibility of a quality management
system is assurance of the acceptability of product or service as
delivered to customers.

Internal failure cost category-Whenever quality appraisals are performed,

the possibility exists for discovery of a failure to meet requirements.
When it happens, unscheduled and possibly unbudgeted expenses are
automatically incurred.

External failure cost category-This category includes all costs incurred due
to actual or suspected non-conforming product or service after delivery
to the customer.
 COST OF QUALITY
 Cost of quality refers to the costs incurred to prevent, or the
costs arising as a results of producing a low-quality product.
Cost of quality will generally cover the following:
 Cost of labor to fix the problem
 Cost of extra material used
 Cost of extra utilities
 Cost of lost opportunity
 Loss of sales/revenue
 Potential loss of market share
 Lower service level to customers/consumers
 COST OF DESIGN QUALITY
• Quality of design refers to how closely the
characteristics of a product or service meet the
requirements of the customers.
• Companies must also pay attention to quality
of design by designing products that satisfy
customer needs. These cost are mainly in the
form of opportunity cost of sales revenue lost
from not providing the service that the
customers want.
 NON-FINANCIAL MEASURES OF QUALITY
AND CUSTOMER SATISFACTION
• Non-financial measures indicate the future needs and
preferences of customers as well as specific areas that need
improvement.
• The following non-financial measures indicate the level of
customer satisfaction:
 Market research information on consumer preferences and
customer satisfaction with specific product features
 Number of defective units shipped to customers as a
percentage of total units shipped
 Number of customer complaints
 Percentage of products that fail soon or often
 NON-FINANCIAL MEASURES OF QUALITY
AND CUSTOMER SATISFACTION
 Delivery delays
 On-time delivery rate
• The following non-financial measures indicate
the level of internal performance:
 Number of defects for each product line
 Process yield
 Employee turnover