Cost of Poor Quality (COPQ)
A motor manufacturing Company produces small motors. The company implemented a total quality management program in year 2001. They recorded the following quality related accounting data that have accumulated for the five-year after the program’s start.
2001 2002 2003 2004
Quality Cost ($ 000s)
Prevention 27 41.5 74 112.3
Appraisal 155 122.5 113.4 107
Internal failure 386.4 469.2 347.8 219.1
External Failure 242 196 103.5 106
Accounting Measures ($ 000s)
Sales 4360 4450 5050 5190
Manufacturing Cost 1760 1810 1880 1890
(2a):- Compute the company’s total failure costs as a percentage of total quality cost for each of the five years. Does there appear to be a trend to this result? If so, speculate on what might have caused the trend.
(2b):- Compute the prevention and appraisal costs, each as a percentage of total costs, during each of the five years. Speculate on what the company’s quality strategy appears to be.
(2c):- Compute quality-sales indices and quality-cost indices for each of the five years. Is it possible to assess the effectiveness of the company’s quality –management program from these index values?