Trade$-$Offs Among Quality Cost Categories, Total Quality Control, Gainsharing

Javier Company has sales of $$8$ million and quality costs of $$1,600,000.$ The company is embarking on a major quality improvement program. During the next three years, Javier intends to attack failure costs by increasing its appraisal and prevention costs. The "right" prevention activities will be selected, and appraisal costs will be reduced according to the results achieved. For the coming year, management is considering six specific activities: quality training, process control, product inspection, supplier evaluation, prototype testing, and redesign of two major products. To encourage managers to focus on reducing non$-$value$-$added quality costs and select the right activities, a bonus pool is established relating to reduction of quality costs. The bonus pool is equal to $10$ percent of the total reduction in quality costs.

Current quality costs and the costs of these six activities are given in the following table. Each activity is added sequentially so that its effect on the cost categories can be assessed. For example, after quality training is added, the control costs increase to $$320,000,$ and the failure costs drop to $$1,040,000.$ Even though the activities are presented sequentially, they are totally independent of each other. Thus, only beneficial activities need be selected.

Control Costs Failure Costs

Current quality costs $$160,000$ $$1,440,000$

Quality training $320,0001,040,000$

Process control $520,000720,000$

Product inspection $600,000656,000$

Supplier evaluation $720,000200,000$

Prototype testing $960,000120,000$

Engineering redesign $1,000,00040,000$

$1.$ Identify the control activities that should be implemented.

$2.$ Given the activities selected in Requirement $1,$ calculate the following:

a$.$ The reduction in total quality costs.

b$.$ The percentage distribution for control and failure costs. Round your answers to the nearest whole percentage value $($for example, $6\%$ would be entered as $"6").$

c$.$ The amount for this year's bonus pool. Trade$-$Offs Among Quality Cost Categories, Total Quality Control, Gainsharing

Javier Company has sales of $$8$ million and quality costs of $$1,600,000.$ The company is embarking on a major quality improvement program. During

the next three years, Javier intends to attack failure costs by increasing its appraisal and prevention costs. The "right" prevention activities will be

selected, and appraisal costs will be reduced according to the results achieved. For the coming year, management is considering six specific activities:

quality training, process control, product inspection, supplier evaluation, prototype testing, and redesign of two major products. To encourage

managers to focus on reducing non$-$value$-$added quality costs and select the right activities, a bonus pool is established relating to reduction of

quality costs. The bonus pool is equal to $10$ percent of the total reduction in quality costs.

Current quality costs and the costs of these six activities are given in the following table. Each activity is added sequentially so that its effect on the

cost categories can be assessed. For example, after quality training is added, the control costs increase to $$320,000,$ and the failure costs drop to

$$1,040,000.$ Even though the activities are presented sequentially, they are totally independent of each other. Thus, only beneficial activities need be

selected.

Required: Redutred:

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Fallutrel torsts

$$ Identify the control activities that should be implemented.

Process control, product inspection, and prototype testing

Process control, supplier evaluation, and engineering redesign

Quality training, process control, and engineering redesign

Quality training, process control, and prototype testing

Quality training, process control, product inspection, and engineering redesign

Quality training, process control, supplier evaluation, and engineering redesign

Quality training, product inspection, and prototype testing

activity is selected only if it increases the bonus pool.