Cost of Quality and Value-Added/Non-Value-Added Reports for a Service Company

Three Rivers Inc. provides cable TV and Internet service to the local community. The activities and activity costs of Three Rivers are identified as follows:

a. Identify the cost of quality classification for each activity and whether the activity is value-added or non-value-added.

Quality Control Activities	Activity Cost		Quality Cost Classification	Value-Added/ Non-Value-Added Classification
Billing error correction	$33,100
Cable signal testing	79,800
Reinstalling service (installed incorrectly the first time)	71,100
Repairing satellite equipment	17,100
Repairing underground cable connections to the customer	21,500
Replacing old technology cable with higher quality cable	129,300
Replacing old technology signal switches with higher quality switches	147,700
Responding to customer home repair requests	39,600
Training employees	30,800
Total activity cost	$570,000

b. Prepare a cost of quality report. Assume that sales are $2,850,000. If required, round percentages to one decimal place.

Three Rivers Inc.
Cost of Quality Report
Quality Cost Classification	Quality Cost	Percent of Total Quality Cost	Percent of Total Sales
Prevention	$	%	%
Appraisal		%	%
Internal failure		%	%
External failure		%	%
Total	$	%	%

c. Prepare a value-added/non-value-added analysis.

Three Rivers Inc.
Value-Added/Non-Value-Added Activity Analysis
Category	Amount	Percent
Value-added	$	%
Non-value-added		%
Total	$	%

d. What percentage of total costs of quality are considered to be value-added?

• 54.0%
• 14.0%
• 68.0%
• None of these options are correct.