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    Are The Costs of Performing Control Activities

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    Lee Jeon Kim
    The document discusses the four types of quality costs that organizations incur: prevention costs, appraisal costs, internal failure costs, and external failure costs. Prevention costs are incurred to prevent poor quality, while appraisal costs determine if products meet requirements. Internal failure costs are from defects found before delivery, and external failure costs are from defects found after delivery. Examples of each type of cost are provided.

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    Are The Costs of Performing Control Activities

    Uploaded by

    Lee Jeon Kim
    22 views2 pages
    The document discusses the four types of quality costs that organizations incur: prevention costs, appraisal costs, internal failure costs, and external failure costs. Prevention costs are incurred to prevent poor quality, while appraisal costs determine if products meet requirements. Internal failure costs are from defects found before delivery, and external failure costs are from defects found after delivery. Examples of each type of cost are provided.

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    are the costs of performing control activities

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    The document discusses the four types of quality costs that organizations incur: prevention costs, appraisal costs, internal failure costs, and external failure costs. Prevention costs are incurred to prevent poor quality, while appraisal costs determine if products meet requirements. Internal failure costs are from defects found before delivery, and external failure costs are from defects found after delivery. Examples of each type of cost are provided.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    22 views2 pages

    Are The Costs of Performing Control Activities

    Uploaded by

    Lee Jeon Kim
    The document discusses the four types of quality costs that organizations incur: prevention costs, appraisal costs, internal failure costs, and external failure costs. Prevention costs are incurred to prevent poor quality, while appraisal costs determine if products meet requirements. Internal failure costs are from defects found before delivery, and external failure costs are from defects found after delivery. Examples of each type of cost are provided.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    are the costs of performing control activities.

    There are two broad categories of control costs:


    prevention

    costs and appraisal costs. Prevention costs are incurred to prevent poor quality in the products or

    services being produced. Appraisal costs are incurred to determine whether products and services are

    conforming to their requirements or customer needs.

    Failure activities are performed by an organization or its customers in response to poor quality.

    Failure costs are the costs incurred by an organization because failure activities are performed. There
    are

    two broad categories of failure costs: internal failure costs and external failure costs. Internal failure

    costs are incurred because products and services do not conform to specifications or customer needs.
    This

    nonconformance is detected prior to the product being shipped or the service being delivered to outside

    parties. External failure costs are incurred because products or services fail to conform to requirements

    or satisfy customer needs. This nonconformance is detected after being delivered to outside parties.
    External failure costs are incurred because products or services fail to conform to requirements

    or satisfy customer needs. This nonconformance is detected after being delivered to outside parties.

    Examples of the four quality costs follow.

    Prevention Costs Appraisal (Detection) Costs

    Quality engineering Inspection of materials

    Quality training Packaging inspection

    Recruiting Product acceptance

    Quality audits Process acceptance

    Design reviews Field testing

    Quality circles Continuing supplier verification

    Marketing research

    Prototype inspection

    Vendor certification

    Internal Failure Costs External Failure Costs

    Scrap Lost sales (performance-related)


    Rework Returns/allowances

    Downtime (defect-related) Warranties

    Reinspection Discounts due to defects

    Retesting Product liability

    Design changes Complaint adjustment

    Repairs Recalls

    Ill will

    Relevant costs and benefits of quality improvement

    a. Relevant costs: incremental costs to implement quality program

    b. Relevant benefits: cost savings and estimated increase in contribution margin from higher sales due

    to quality improvements c. Relevant cost and relevant revenue analysis ignores allocated amounts

    d. Key question: How will total costs and total revenues change

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