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Chapter 15 PDF

This document contains three chapters about quality costs and productivity measurement and control. It defines quality costs as costs from poor quality, including control costs to prevent issues and failure costs after issues occur. It discusses measuring quality costs, including observable costs from records and hidden opportunity costs. Quality is defined as meeting customer expectations. The document also discusses measuring and reporting productivity and the relationship between quality and productivity improvements.

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Hafizh Galih
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79 views

Chapter 15 PDF

This document contains three chapters about quality costs and productivity measurement and control. It defines quality costs as costs from poor quality, including control costs to prevent issues and failure costs after issues occur. It discusses measuring quality costs, including observable costs from records and hidden opportunity costs. Quality is defined as meeting customer expectations. The document also discusses measuring and reporting productivity and the relationship between quality and productivity improvements.

Uploaded by

Hafizh Galih
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Nama : Yudistira AKUNTANSI MANAJEMEN

NIM : 12030117140152 KELAS - E

CHAPTER 15

Quality Costs and Productivity: Measurement,Reporting, and Control


Measuring the Costs of Quality

Quality improvement can increase profitability in two ways: (1) by increasing


customer demand and (2) by decreasing costs. In a tightly competitive market, increased
demand and cost savings can mean the difference between surviving and thriving.

Quality Defined

quality product or service is one that meets or exceeds customer expectations. In effect,
quality is customer satisfaction. Thus, a quality product or service is one that meets or
exceeds customer expectations on the following eight dimensions:

1. Performance
2. Aesthetics
3. Serviceability
4. Features
5. Reliability
6. Durability
7. Quality of conformance
8. Fitness for use

Costs of Quality Defined

Thus, the costs of quality are the costs that exist because poor quality may or does
exist. Control activities are performed by an organization to prevent or detect poor quality
(because poor quality may exist). Failure activities are performed by an organization or its
customers in response to poor quality (poor quality does exist). Failure costs are the costs
incurred by an organization because failure activities are performed.

Measuring Quality Costs

Observable quality costs are those that are available from an organization’s
accounting records. Hidden quality costs are opportunity costs resulting from poor quality.

The Multiplier Method The multiplier method assumes that the total failure cost is simply
some multiple of measured failure costs:

The Market Research Method Formal market research methods are used to assess the effect
poor quality has on sales and market share. Customer surveys and interviews with members
of a company’s sales force can provide significant insight into the magnitude of a company’s
hidden costs.
The Taguchi Quality Loss Function The traditional zero defects definition assumes
that hidden quality costs exist only for units that fall outside the upper and lower specification
limits.

Reporting Quality Cost Information

Quality Cost Reports

The financial significance of quality costs can be assessed more easily by expressing
these costs as a percentage of actual sales.

Quality Cost Function:Acceptable Quality View

This point represents the minimum level of total quality costs. It is the optimal
balance between control costs and failure costs and defines what is known as the acceptable
quality level (AQL).

Quality Cost Function:Zero-Defects View

The AQL viewpoint is based on a traditional defective product definition. In the classic
sense, a product is defective if it falls outside the tolerance limits for a quality characteristic.
Under this view, failure costs are incurred only if the product fails to conform to
specifications and an optimal trade-off exists between failure and control costs.

1. Dynamic Nature of Quality Costs The discovery that trade-offs among quality cost
categories can be managed differently from what is implied by the relationships
portrayed in Exhibit 15-5 is analogous to the discovery that inventory cost trade-offs
can be managed differently from what the traditional inventory model (EOQ) implied.

Activity-Based Management and Optimal Quality Costs

Activity-based management classifies activities as value-added and non-value-added


and keeps only those that add value. This principle can be applied to quality-related activities.

Trend Analysis

Quality cost reports reveal the magnitude of quality costs and their distribution among
the four categories, thus revealing opportunities for improvement. Once quality improvement
measures are undertaken, it is important to determine whether quality costs are being reduced
as planned.

Using Quality Cost Information

The principal objective of reporting quality costs is to improve and facilitate


managerial planning, control, and decision making.

Productivity:Measurement and Control

Productivity is concerned with producing output efficiently, and it specifically


addresses the relationship of output and the inputs used to produce the output.
Partial Productivity Measurement

Productivity measurement is simply a quantitative assessment of productivity


changes. The objective is to assess whether productive efficiency has increased or decreased.

Total Productivity Measurement

Measuring productivity for all inputs at once is called total productivity measurement.
In practice, it may not be necessary to measure the effect of all inputs. Many firms measure
the productivity of only those factors that are thought to be relevant indicators of
organizational performance and success.

Price-Recovery Component

The difference between the total profit change and the profit-linked productivity
change is called the price-recovery component

Quality and Productivity

Improving quality may improve productivity, and vice versa. For example, if rework
is reduced by producing fewer defective units, less labor and fewer materials are used to
produce the same output.

Gainsharing

Gainsharing is providing to a company’s entire workforce cash incentives that are


keyed to quality and productivity gains.

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