Question
Cost of Qualityand 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
Cost of Qualityand 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 | 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 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? 72.7%
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Principles Of Cost Accounting
Authors: Edward J. Vanderbeck
12th Edition
0324100949, 978-0324100945
