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

Exercise 13

In 2011 a manufacturing company instituted a total quality management (TQM) program producing the report shown below:

Summary COQ Report (in thousands)
	2011	2012	% Change
Prevention costs	$ 200	$ 300	+50
Appraisal costs	210	315	+50
Internal failure costs	190	114	— 40
External failure costs	1,200	621	— 48
Total COQ	$1,800	$1,350	—25

On the basis of this report, which one of the following statements is most likely correct?

a. An increase in conformance costs resulted in a higher-quality product and, therefore, a decrease in nonconformance costs.

b. An increase in inspection costs was solely responsible for the decrease in quality.

c. Quality costs such as scrap and rework decreased by 48 percent.

d. Quality costs such as returns and repairs under warranty decreased by 40 percent.

e. Nonconformance costs increased by 50 percent and conformance costs decreased by approximately 47 percent.

Step 1 of 5

Cost of Quality i.e. COQ is a complete framework which includes the financial costs associated with quality. The major classifications of COQ categories are prevention cost, appraisal cost, internal failure cost and external failure costs.