Reading Assignment:

Download and read Chapter 12 in Essentials of Quality With Cases and Experiential Exercises.  Review the Discussion Questions at the end of the chapter to be sure that you understand what you have read.

A quality cost system can be used as a means of showing the return on investments in improving quality (i.e. quality is free, according to Crosby).  A quality cost system can also provide a means of measuring progress of the quality improvement process.

Many organizations track only those quality costs that are easy to measure (Deming's visible figures) if they do any quality cost measurement at all.  This can lead to a gross underestimate of the true costs of poor quality.  Such underestimation can lead to a lack of emphasis on addressing quality problems and lack of justification for continuous improvement efforts.

ASQ divides quality costs into prevention, appraisal, external failure, and internal failure cost categories.  Tracking and properly categorizing quality costs can assist an organization in determining if the allocation of costs is appropriate and consistent with their quality objectives.  It also provides a means of tracking progress over time.

Many organizations routinely track most of the components of quality costs, but bury them within their financial reporting system.  For example, some internal failure costs may be shown on financial reports as variances (e.g. material usage variance).  Others, though, are buried in the system such as standard scrap factors included in the material requirements planning (MRP) system.  So long as the standard scrap rates are not exceeded, managers believe that the system is performing well--when in fact significant scrap may be generated.  Some companies include the standard cost of rework in their product cost systems.  This cost of (poor) quality is thus built into the standard cost of production.  Salaries for quality inspectors may be bundled in with factory overhead.  Test equipment costs may be included with other capital expenditures.  One goal of a quality cost system is to explicitly identify all these quality costs so that the true cost of quality can be known.

Answer Discussion Questions 1-14 at the end of Chapter 12 of the text.  Do not submit these for
grading.  Address any confusion you have about a question via e-mail to the instructor.

Do Problems 1-7 at the end of Chapter 12 of the text.

Prepare a one page reaction to the following statements:

Deming said that the cost associated with a lost customer is "unknown and unknowable."

Crosby says that "those who assume that some tasks are just plain unmeasureable [are wrong.]  Anything can be measured if you have to do it."
 

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