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.

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	VA/NVA Classification
Billing error correction		$60,000
Cable signal testing		140,000
Reinstalling service (installed incorrectly the first time)		40,000
Repairing satellite equipment		50,000
Repairing underground cable connections to the customer		25,000
Replacing old technology cable with higher quality cable		175,000
Replacing old technology signal switches with higher quality switches		150,000
Responding to customer home repair requests		30,000
Training employees		80,000
Total activity cost		$750,000

b. Prepare a cost of quality report. Assume that sales are $3,000,000. 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	$	%	%

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?