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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 | $26,400 | External failure | Non-value-added | |
| Cable signal testing | 108,000 | Appraisal | Value-added | |
| Reinstalling service (installed incorrectly the first time) | 56,800 | External failure | Non-value-added | |
| Repairing satellite equipment | 30,000 | Internal failure | Non-value-added | |
| Repairing underground cable connections to the customer | 17,200 | External failure | Non-value-added | |
| Replacing old technology cable with higher quality cable | 138,600 | Prevention | Value-added | |
| Replacing old technology signal switches with higher quality switches | 158,400 | Prevention | Value-added | |
| Responding to customer home repair requests | 31,600 | External failure | Non-value-added | |
| Training employees | 33,000 | Prevention | Value-added | |
| Total activity cost | $600,000 | |||
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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 | ||
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