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 | $41,200 | External failure | Non-value-added | |
| Cable signal testing | 99,400 | Appraisal | Value-added | |
| Reinstalling service (installed incorrectly the first time) | 88,500 | External failure | Non-value-added | |
| Repairing satellite equipment | 49,700 | Internal failure | Non-value-added | |
| Repairing underground cable connections to the customer | 26,800 | External failure | Non-value-added | |
| Replacing old technology cable with higher quality cable | 149,100 | Prevention | Value-added | |
| Replacing old technology signal switches with higher quality switches | 170,400 | Prevention | Value-added | |
| Responding to customer home repair requests | 49,400 | External failure | Non-value-added | |
| Training employees | 35,500 | Prevention | Value-added | |
| Total activity cost | $710,000 | |||
Feedback
Correct
b. Prepare a cost of quality report. Assume that sales are $2,840,000. 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 | $ | % | % |
Feedback
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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