Question

Voltswagon plc produces and sells cars. In the past, the company has been very successful, however, increased competition and complaints about car reliability have started to reduce company profits. A new Finance Director has recently hired a consultant to review the existing production processes. The consultant has identified the following areas for consideration: (i) Quality costs Balanced Scorecard REQUIRED: Please note: a maximum word count applies to parts (b), (c) and (d) of this question ONLY. There is no maximum word counts for part (a). (a) The following costs related to maintaining product quality were incurred during the financial year ended 31 December 2019: £'000 % of sales (£50m) 2% 1,000 400 200 300 0.8% 0.4% 0.6% 1,500 3% 1,100 2.2% Description 1. Costs of downtime, where staff were unable to work, due to the quality of supplies received into the business 2. Costs of re-work on faulty components before sale 3. Inspection of raw materials from external suppliers 4. Inspection of finished goods produced by Voltswagon plc 5. Handling of returns received from customers due to poor quality products received 6. Repairs of items returned under warranty (a period during which faulty products will be repaired for free) 7. Training of quality control inspectors who inspect the quality of items on the production line Regular maintenance costs for machines that produce component parts to ensure that faulty items are not produced 9. Product recalls, where a fault has been identified in a certain number of products and the customer needs to return their product in return for a replacement 10. Handling customer complaints 11. Supplier evaluation and selection reviews 12. Inspection of work in progress Total 300 0.6% 8. 200 0.4% 900 1.8% 1,800 100 200 8,000 3.6% 0.2% 0.4% 16%

Answer 1

400 1500 Quality Cost incurred during FY ending 31st December, 2019 % of Sales Sr Description Cost (50 Mil) Category Cost of Downtime where staff were unable to work due to the 1 quality of supplies received into the business 1000 2% Internal 2 Cost of re-work on faulty components before sale 0.80% Internal 3 Inspection cost of raw materials from external suppliers 200 0.40% Appraisal 4 Inspection of finished goods produced by Volswagen 300 0.60% Appraisal Handling of Returns from Customers on account of poor quality 5 products received 3% External Repairs of items returned under warranty (a period during which 6 faulty products will be repaired for free) 2.20% External Training of Quality control inspectors who inspect quality of items on 7 production line 0.60% Prevention Regular maintenance cost of machines that produce component parts 8 to ensure that faulty items are not produced 0.40% Prevention Product recalls, where a fault has been identified in a certain number of products and customer needs to return their product in return for a 9 replacement 1.80% External 10 Handling customer complaints 1800 3.60% External 11 Supplier evaluation and selection reviews 0.20% Prevention 12 Inspection of work in progress 0.40% Appraisal 1100 300 200 900 100 200

Category Appraisal External Internal Prevention Sum of Cost% of Sale Industry Avg% 700 1.4 3.3 5300 10.6 1.8 1400 2.8 2.5 600 1.2 3.4
The above analysis clearly shows that the External tyoe quality costs (Replacements,Warranty,Defective returns , customer complaints) are abnorly deviating northwards from Industry average.Rest costs are better than industry average.

If the above is interpreted then it clearly means a loss of Customer faith in the brand.With recalls and Defects Volkvagen is clealry to loose its Customers andmmarket share.Hit of the top line clearly wil have impact on profits going down.Moreso increase in these costs on the other hand will also be ablow on the cost lines again further pulling down the profits.