COSTS OF QUALITY

Spektrum Ltd, is reviewing its strategy with regards Total Quality Management based on two different scenarios: actual situation vs. proposal Actual situation: At present, 25% of Spektrum's total manufacturing output fails quality control tests (these are conducted by production supervisors as part of their normal duties). Poor quality units are rejected as scrap before they are sent out to customers, at a cost of $60,000. Further, 12% of the units sent out to customers are returned as faulty, the cost of returns is estimated at $50.000

Spektrum currently spends $29.900 on quality education & training programs as well as $20,100 on inspection & testing of materials

Proposal Spektrum is now considering spending a total of $52,000 in quality education & training programs, and a total of $69,000 on inspection & testing of materials. It is estimated that these actions will reduce the actual annual internal failure costs by 50% as well as the external failure costs by 80%.

Required:

a) State the costs of the 'actual situation using the four categories typically applied to classify costs of quality with regards conformance and non-conformance costs (1 mark]

b) State the costs of the 'proposal' using the four categories typically applied to classify costs of quality with regards conformance and non-conformance costs [1 mark]

c) Based on your analysis, do you recommend that Spektrum should proceed with the proposal'? Justify your answer [1 mark]

d) The management accountant in Spektrum is also considering implementing the 'Balanced Scorecard (Kaplan and Norton, 1992) in order to improve the organisational performance. Please advise Spektrum by describing two advantages and two disadvantages of the Balanced Scorecard to help the management accountant with the final decision [1 mark)