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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 are identified.

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

Quality Activities Activity Cost Quality Cost Classification VA/NVA
Billing error correction $60,000 External failure Non-value-added
Cable signal testing 140,000 Appraisal Value-added
Reinstalling service (installed incorrectly the first time) 40,000 External failure Non-value-added
Repairing satellite equipment 50,000 Internal failure Non-value-added
Repairing underground cable connections to the customer 25,000 External failure Non-value-added
Replacing old technology cable with higher quality cable 175,000 Prevention Value-added
Replacing old technology signal switches with higher quality switches 150,000 Prevention Value-added
Responding to customer home repair requests 30,000 External failure Non-value-added
Training employees 80,000 Prevention Value-added
Total $750,000

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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 $ % %

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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 cost as compared to the total costs by dividing individual quality categories by the total. In another column, determine the percent of each quality cost classification as compared to total sales by dividing individual quality costs classes by the total sales amount. Total all columns. Remember that the Percent of total quality costs 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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