The costs of quality for the three companies

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Reference no: EM131117074

Minturn Enterprises, Inc., operates as three autonomous companies, each with a chief executive officer who oversees its operations. At a recent corporate meeting, the company CEOs agreed to adopt total quality management and to track, record, and analyze their costs and nonfinancial measures of quality. All three companies are operating in highly competitive markets. Sales and quality-related data for September follow.

	Carbondale	Wolcott	Silverthorne
	Company	Company	Company
Annual sales	$11,600,000	$13,300,000	$10,800,000
Costs of quality
Vendor audits	$ 69,000	$ 184,800	$ 130,800
Quality audits	58,900	115,550	141,700
Failure analysis	188,500	92,400	16,350
Design review of products	80,500	176,700	218,000
Scrap and rework	207,000	160,800	21,200
Quality-certified suppliers	49,200	105,600	231,600
Preventive maintenance	92,000	158,400	163,500
Warranty adjustments	149,550	105,600	49,050
Product recalls	201,250	198,000	80,050
Quality training of
employees	149,500	237,600	272,500
End-of-process
sampling and testing	34,500	145,200	202,700
Reinsertion of rework	126,500	66,000	27,250
Returned goods	212,750	72,600	16,350
Customer complaint
processing	109,250	162,450	38,150
Total costs of quality
Nonfinancial measures
of quality	$ 1,728,400	$ 1,981,700	$ 1,609,200
			$ 1,609,200
Number of warranty claims	61	36	12
Customer complaints	107	52	18
Defective parts per
million	4,610	2,190	1,012
Returned orders	9.20%	4.10%	0.90%

Required

1. Prepare an analysis of the costs of quality for the three companies. Categorize the costs as (a) costs of conformance, with subsets of prevention costs and appraisal costs, or (b) costs of nonconformance, with subsets of internal failure costs and external failure costs. Compute the total costs in each category for each company.

2. For each company, compute the percentage of sales represented by prevention costs, appraisal costs, total costs of conformance, internal failure costs, external failure costs, total costs of nonconformance, and total costs of quality.

3. Interpret the cost-of-quality data for each company. Is its product of high or low quality? Why? Is each company headed in the right direction to be competitive?

4. Manager Insight: Evaluate the nonfinancial measures of quality in terms of customer satisfaction. Are the results consistent with your analysis in 3?

Explain your answer.

Reference no: EM131117074

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