Classifying quality costs
Delance & Co. makes electronic components. Chris Delance, the president, recently instructed vice president Jim Bruegger to develop a total quality control program. “If we don’t at least match the quality improvements our competitors are making,” he told Bruegger, “we’ll soon be out of business.” Bruegger began by listing various “costs of quality” that Delance incurs. The first six items that came to mind were:
a. Costs incurred by Delance customer representatives traveling to customer sites to repair defective products, $15,000.
b. Lost profits from lost sales due to reputation for less than perfect products, $60,000.
c. Costs of inspecting components in one of Delance’s production processes, $25,000.
d. Salaries of engineers who are redesigning components to withstand electrical overloads, $80,000.
e. Costs of reworking defective components after discovery by company inspectors, $40,000.
f. Costs of electronic components returned by customers, $55,000.
1. Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost. Then, determine the total cost of quality by category.