Chapter 1A, Problem 1A.1E

Cost of Quality Terms LO1—7, LO1—8

A number of terms relating to the cost of quality and quality management are listed below:

Required:

Choose the term or terms that most appropriately complete the following statements. The terms can be used more than once and a blank can hold more than one word.

1. A product that has a high rate of defects is said to have a low _____.
2. All of the costs associated with preventing and dealing with defects once they occur are known as _____.
3. In many companies, small groups of employees, known as _______, meet on a regular basis to discuss ways to improve quality.
4. A company incurs _____ and _____ in an effort to keep defects from occurring.
5. A company incurs ______ and ______ because defects have occurred.
6. Of the four groups of costs associated with quality of conformance, _____ are generally the most damaging to a company.
7. Inspection, testing, and other costs incurred to keep defective products from being shipped to customers are known as _______.
8. ______ are incurred in an effort to eliminate poor product design, defective manufacturing practices, and the providing of substandard service.
9. The costs relating to defects, rejected products, and downtime caused by quality problems are known as ______.
10. When a product that is defective in some way is delivered to a customer, ______ are incurred.
11. Over time a company’s total quality costs should decrease if it redistributes its quality costs by placing its greatest emphasis on ______ and ______.
12. One way to ensure that management is aware of the costs associated with quality is to summarize such costs on a _______.

To determine

Introduction:

Conformance on Quality:

Quality conformance refers to those costs which are incurred to assess whether the product process or services are capable of gathering its planned conditions. These planned conditions are determined by analysing the needs of the customers.

To choose:The most appropriate term to fill in the blank.

Answer to Problem 1A.1E

A product that has a high rate of defects is said to have a low conformance on quality.

Explanation of Solution

Products that have high rate of defects are low in quality and hence cannot meet the planned conditions because they do not meet the needs of the customers and hence they have a low conformance on quality.

To determine

Introduction:

Quality Costs:

Quality costs are defined as those costs which are incurred by the company to avoid production of defective products and hence it is generally a combination of prevention and appraisal cost. Thus, these both costs ensure that the defective products do not reach into the hands of the customers.

To choose: The most appropriate term to fill in the blank.

Answer to Problem 1A.1E

All of the costs associated with preventing and dealing with defects once they occur are known as quality costs.

Explanation of Solution

All of the costs associated with preventing and dealing with defects once they occur are known as quality costs. Thus, these costs are incurred by the company to prevent defective products during the production process itself.

To determine

Introduction:

Quality Circle:

Quality circle comprises of a small group of employees and management who are assembled on a regular basis to discuss about the quality improvements. These type of quality circles are used in various sectors like manufacturing companies, health industry and various other sectors too.

To choose: The most appropriate term to fill in the blank.

Answer to Problem 1A.1E

In many companies, small groups of employees, known as quality circle meet on a regular basis to discuss ways to improve quality.

Explanation of Solution

In many companies, small groups of employees, known as quality circlemeet on a regular basis to discuss ways to improve quality. These meetings help the company to continuously adhere to the quality standards to ensure that their products meet the consumer needs.

To determine

Introduction:

Prevention Cost:

Prevention costs are those costs that are incurred by the company during the initial production stage itself to avoid defects. This is a very cost effective method since it is done on the initial stage itself. Some examples of such costs are quality training provided to workers to avoid defective products, improvements done to the manufacturing process etc.

Appraisal Cost:

Appraisal costs are those costs that are incurred by the company before the shipment of the products to the customers.This cost is also known as inspection cost because usually the company conducts routine checks to increase the quality of the production process.

To choose:The most appropriate term to fill in the blank.

Answer to Problem 1A.1E

A company incurs prevention and appraisalcosts in an effort to keep defects from occurring.

Explanation of Solution

A company incurs preventioncosts to avoid defects during the initial production stage itself and appraisal costsare incurred before the shipment of the products to the customersin an effort to keep defects from occurring.

To determine

Introduction:

External failure cost:

External failure costs are those costs that are incurred by a company after the product or services is sold to the customers because of defects. Some of the examples of such costs are replacement, warranties, replacement of damaged products etc.

Internal failure cost:

Internal failure costs are those costs which are incurred by a company before the shipment of the products because of defects. Some of the examples of such costs are second hand works, cost of rephrase etc.

To choose:The most appropriate term to fill in the blank.

Answer to Problem 1A.1E

A company incurs external failure cost and internal failure cost because defects have occurred.

Explanation of Solution

A company incurs external failure cost because of defects in the products sold to consumers and internal failure cost are incurred by a company before the shipment of the products because of defects.

To determine

Introduction:

External failure cost:

External failure costs are those costs that are incurred by a company after the product or services is sold to the customers because of defects. Some of the examples of such costs are replacement, warranties, replacement of damaged products, etc.

To choose: The most appropriate term to fill in the blank.

Answer to Problem 1A.1E

Of the four groups of costs associated with quality of conformance, external failure costis generally the most damaging to a company.

Explanation of Solution

Of the four groups of costs associated with quality of conformance, external failure cost are generally the most damaging to a company because the defects are found after the products are sold to the consumers and this spoils the reputation and goodwill of the company and hence it is the most damaging to the company.

To determine

Introduction:

Appraisal Cost:

Appraisal costs are those costs that are incurred by the company before the shipment of the products to the customers. This cost is also known as inspection cost because usually the company conducts routine checks to increase the quality of the production process.

To choose: The most appropriate term to fill in the blank.

Answer to Problem 1A.1E

Inspection, testing and other costs incurred to keep defective products from being shipped to customers are known asappraisal costs.

Explanation of Solution

Inspection, testing and other costs incurred to keep defective products from being shipped to customers are known as appraisal costs. These costs are also known as inspection cost because usually the company conducts routine checks to increase the quality of the production process and to avoid defective products to the consumers.

To determine

Introduction:

Prevention Cost:

Prevention costs are those costs that are incurred by the company during the initial production stage itself to avoid defects. This is a very cost effective method since it is done on the initial stage itself. Some examples of such costs are quality training provided to workers to avoid defective products, improvements done to the manufacturing process etc.

To choose: The most appropriate term to fill in the blank.

Answer to Problem 1A.1E

Prevention costsare incurred in an effort to eliminate poor product design, defective manufacturing practices and the providing of substandard service.

Explanation of Solution

Prevention costs are incurred in an effort to eliminate poor product design, defective manufacturing practices and the providing of substandard service.This is a very cost effective method since it is done on the initial stage itself to avoid defects.

To determine

Introduction:

Internal failure cost:

Internal failure costs are those costs which are incurred by a company before the shipment of the products because of defects. Some of the examples of such costs are second hand works, cost of rephrase etc.

To choose: The most appropriate term to fill in the blank.

Answer to Problem 1A.1E

The costs relating to defects, rejected products and downtime caused by quality problems are known asinternal cost failure.

Explanation of Solution

The costs relating to defects, rejected products and downtime caused by quality problems are known as internal cost failure and these are incurred sooner before the shipment to the consumers and hence defective products sold to consumers can be avoided.

To determine

Introduction:

External failure cost:

External failure costs are those costs that are incurred by a company after the product or services is sold to the customers because of defects. Some of the examples of such costs are replacement, warranties, replacement of damaged products etc.

To choose: The most appropriate term to fill in the blank.

Answer to Problem 1A.1E

When a product that is defective in some way is delivered to a customer, external failure costs are incurred.

Explanation of Solution

When a product that is defective in some way is delivered to a customer, external failure costs are incurred and these are incurred by a company after the product or services is sold to the customers because of defects.

To determine

Introduction:

Prevention Cost:

Prevention costs are those costs that are incurred by the company during the initial production stage itself to avoid defects. This is a very cost effective method since it is done on the initial stage itself. Some examples of such costs are quality training provided to workers to avoid defective products, improvements done to the manufacturing process etc.

Appraisal Cost:

Appraisal costs are those costs that are incurred by the company before the shipment of the products to the customers. This cost is also known as inspection cost because usually the company conducts routine checks to increase the quality of the production process.

To choose: The most appropriate term to fill in the blank.

Answer to Problem 1A.1E

Over time a company’s total quality costs should decrease if it redistributes its quality costs by placing its greatest emphasis on prevention costs and appraisal costs.

Explanation of Solution

Over time a company’s total quality costs should decrease if it redistributes its quality costs by placing its greatest emphasis on prevention costs because these are incurred by the company during the initial production stage itself to avoid defects and appraisal costs are those costs that are incurred by the company before the shipment of the products to the customers.

To determine

Introduction:

Quality Costs Reports:

Quality cost reports are a detailed reports which comprises of appraisal cost, prevention costs, external and internal cost failures that are incurred by a company.

To choose: The most appropriate term to fill in the blank.

Answer to Problem 1A.1E

One way to ensure that management is aware of the costs associated with quality is to summarize such costs on aquality cost reports.

Explanation of Solution

One way to ensure that management is aware of the costs associated with quality is to summarize such costs on a quality cost reportsbecause it contains detailed report on appraisal cost, prevention costs, external and internal cost failures that are incurred by a company.