Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 21

Cost of Environmental Quality Reporting This chapter includes an overview of a cost-of-quality (COQ) reporting system. Such a system has, in fact, been applied in practice by a number of companies. This exercise pertains to the application of a COQ reporting framework to environmental management.

1. What motivation is there to implement an environmental accounting and control system?

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2. Construct a sample environmental cost-of-quality report using the four categories that comprise a traditional COQ report (i.e., prevention costs, appraisal/detection costs, internal failure costs, and external failure costs).

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3. Do you think firms would be motivated to provide to shareholders information contained in the environmental COQ report you propose above in (2)? Why or why not?

Step 1 of 4

Management and Control of Quality

Quality is explained as a term associated with customer satisfaction. It is the total level of satisfaction any customer gets from any organization’s products or service. There are two components of quality- Design Quality and Performance Quality. There are various approaches to setting quality related expectations and among those alternatives one is the Cost of Quality (COQ) Reporting. It provides relevant cost and revenue data used for decision-making purposes.