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| Corporate practice bd |
Quality Costing (COQ):
Quality cost are the cost incurred to prevent,or the cost of arising as a result of the production of a law quality product.
Classification of Quality cost:
Quality cost are classified in four categories such as-
01.Prevention Costs:
The Prevention cost is incurred to preclude the production of product that do not conform to the specification.This cost include-
01.Machine Maintenance cost
02.Supplier training
03.Design review
04.process Engineering
05.Quality Engineering
06. System development
07.statistical process
08.Quality reporting
09.Supplier evaluation
10.Quality Audit
11.Quality circles
12. Field trials
13.Fitting machine for mistake
14.Supply time management
15.Quality training
16.Re strategy & development
17. Internal repair cost
18.Supplier review.
02.Appraisal Costs:
Appraisal Cost incurred to detect which of the individual units of the products that do not conform to specification.this cost include-
01. Inspection cost
02.Product acceptance
03.Process acceptance
04.Final testing/supplies testing
05. Development testing equipment
06.Out side Endorsement
07.Procedure verification
08.Depreciation of testing equipment.
03.Internal Failure Costs:
The Internal Failure Costs is incurred on defective product before they are shipped to the customers.this cost include-
01.Rework cost
02.Net scrap cost
03.Disposal of defective product
04.Down time work cost
05.Design changes cost
06.Scrap only.
04.out of pocket / External Failure Costs:
The external Failure Costs is incurred on defective product after they are shipped to the customers.this cost include-
01.Transportation cost
02.Repair cost
03.Warranty cost
04. Product recall
05.Customer complain/ Complaint adjustment
06.Cost of field serving
07.Customer return
08.Litigation Claim
09.Disposal of wastage
10. Customers support cost
Others formulas:
01.Calculation of Lost of Profit=
Profit lost by selling units as defective=
(Total defective units-no.of units reworked)*(profit for good unit-profit for defective units).
02.Rework cost=No of units rework *cost per defective units.
03.Cost of processing customers return =No.of customers return* Cost per return
04. Total failure cost=Profit lost by selling units as defective+Rework cost(internal+external)+Cost of processing customers return.
05.Total quality cost = Defective control cost+Total failure cost+opportunity cost
06.Defective control cost =(Prevention cost+Appraisal cost).
Let,s start with Practical Example - (CMA) Lecture sheet)
Practical Example. (01)(Try yourself)
The wimax company LTD. manufactures & sales one product provide following Information
Selected cost and operating data relating to the product is given below-
Total defective units=1500
Number of units rework = 900
Number of customer return =150
Profit for good units =Tk.38.00
Profit for defective units =Tk.22.00
Cost of rework of defective unit=Tk.7.00
Lost of process a return units=Tk.12.00
Total prevention cost =Tk.15,000.000
Total Appraisal cost=Tk.5,000.000
Requirement
Compute the following-
01.Profit lost by selling in reworked defective units
02.Total rework cost
03.Cost of processing customers return
04.Total failure cost
05.Total Quality cost
Practical Example. (02)(Try yourself) (CMA-Dec-2018)
The wimax company LTD. manufactures & sales one product provide following Information
Selected cost and operating data relating to the product is given below-
Total defective units=12000
Number of units rework = 2400
Number of customer return =800
Profit for good units =Tk.80.00
Profit for defective units =Tk.50.00
Cost of rework of defective unit=Tk.25.00
Cost of process a return units=Tk.20.00
Total prevention cost =Tk.1,70,000.000
Total Appraisal cost=Tk.27,200.000
Cost of Warranty work=Tk.10,000.000
Litigation related to product failure=1,40,000.000
Opportunity cost of lost customers while litigation is being settled Tk.1,00,000.000
Requirement
Compute the following-
01.Profit lost by selling un reworked defects
02.Total rework cost
03.Cost of processing customers return
04.Total failure cost and
05.Total Quality cost