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Digital River Inc. provides cable TV and Internet service to the local community. The activities and activity costs of Digital Light are identified as follows:

Digital River Inc. provides cable TV and Internet service to the local community. The activities and activity costs of Digital Light are identified as follows:

1

Activities

Activity Cost

2

Billing error correction

$30,000.00

3

Cable signal testing

86,400.00

4

Reinstalling service (installed incorrectly the first time)

29,000.00

5

Repairing satellite equipment

32,400.00

6

Repairing underground cable connections to the customer

19,000.00

7

Replacing old technology cable with higher quality cable

170,000.00

8

Replacing old technology signal switches with higher quality switches

123,000.00

9

Responding to customer home repair requests

24,600.00

10

Training employees

25,600.00

11

Total

$540,000.00

Amount Descriptions
Appraisal
External failure
Internal failure
Non-value-added
Prevention
Value-added

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 $ 30,000
Cable signal testing 86,400
Reinstalling service (installed incorrectly the first time) 29,000
Repairing satellite equipment 32,400
Repairing underground cable connections to the customer 19,000
Replacing old technology cable with higher quality cable 170,000
Replacing old technology signal switches with higher quality switches 123,000
Responding to customer home repair requests 24,600
Training employees 25,600
Total $540,000

B. Prepare a cost of quality report. Assume that sales are $1,900,000. Round percentages to one decimal place. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.

Digital River Inc.

Cost of Quality Report

1

Quality Cost Classification

Quality Cost

Percent of Total Quality Cost

Percent of Total Sales

2

3

4

5

6

Total

Prepare a value-added/non-value-added analysis. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.

Digital River Inc.

Value-Added/Non-Value-Added Activity Analysis

1

Category

Amount

Percent

2

3

4

Total

Interpret the information in (B) and (C).

What percentage of total costs of quality are considered to be value-added? %

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