Question
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
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 | $28,000 | External failure | Non-value-added | |
| Cable signal testing | 85,000 | Appraisal | Value-added | |
| Reinstalling service (installed incorrectly the first time) | 60,200 | External failure | Non-value-added | |
| Repairing satellite equipment | 25,000 | Internal failure | Non-value-added | |
| Repairing underground cable connections to the customer | 18,200 | External failure | Non-value-added | |
| Replacing old technology cable with higher quality cable | 105,000 | Prevention | Value-added | |
| Replacing old technology signal switches with higher quality switches | 120,000 | Prevention | Value-added | |
| Responding to customer home repair requests | 33,600 | External failure | Non-value-added | |
| Training employees | 25,000 | Prevention | Value-added | |
| Total activity cost | $500,000 | |||
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Correct
b. Prepare a cost of quality report. Assume that sales are $2,000,000. 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 | $ | % | % |
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b. Classify each activity as either prevention, appraisal, internal failure or external failure. List the total costs of each of these four categories in a column called quality cost. In a separate column, determine the percent of each quality cost as compared to the total quality costs by dividing individual quality cost categories by the total quality cost. In another column, determine the percent of each quality cost classification as compared to total sales by dividing individual quality cost classes by the total sales amount. Total all columns. Remember that the Percent of total quality cost column should total to 100%.
Learning Objective 1 and Learning Objective 3.
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 | $ | % |
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d. What percentage of total costs of quality are considered to be value-added?
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Financial Accounting Impact On Decision Makers
Authors: Gary A. Porter, Curtis L. Norton
7th Edition
1111464936, 978-1111464936
