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 | $38,300 | |||
Cable signal testing | 92,800 | |||
Reinstalling service (installed incorrectly the first time) | 82,300 | |||
Repairing satellite equipment | 29,000 | |||
Repairing underground cable connections to the customer | 24,900 | |||
Replacing old technology cable with higher quality cable | 112,100 | |||
Replacing old technology signal switches with higher quality switches | 128,100 | |||
Responding to customer home repair requests | 45,900 | |||
Training employees | 26,600 | |||
Total activity cost | $580,000 |
b. Prepare a cost of quality report. Assume that sales are $2,320,000. 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?
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