Question

Question No-1

Ventura Company; Quality Cost Report For Years 2017 and 2018
	2017		2018
	Amount	Percentage	Amount	Percentage
Prevention cost	650,000	1.30%	1,000,000	2.00%
Appraisal cost	1,200,000	2.40%	1,500,000	3.00%
Internal failure cost	2,000,000	4.00%	3,000,000	6.00%
External failure cost	5,150,000	10.30%	2,000,000	4.00%
Total Quality Costs	9,000,000	18.00%	7,500,000	15.00%
Sales	50,000,000		50,000,000

a)Prepare a written evaluation report with graph (use percentage column in the graph) for the Ventura Company on the basis of following quality costs report.

Answer 1

Ventura Company is having lower prevention cost and appraisal cost as percentage of total sales where as the internal failure costs and external failure costs as percentage of total sales is very high. A Firm should spend more quality costs on prevention and appraisal in order to ensure its internal and external failure costs is lower. The cost of internal failure and external failure is very higher compared to prevention cost and appraisal cost which will increase the overall total quality cost. The more the company spends on prevention and appraisal quality costs the trend of internal failure and external failure costs will decrease the reason being the company is improving quality of its product by training its employees and suppliers, supplier audits, frequent testing of materials, product design changes , etc

Based on the given data for 2017 and 2018 it is clear when company increased its prevention and appraisal costs in 2018 compared to 2017 , the external failure costs as percentage of sales decreased considerably. Hence Ventura Company should increase its prevention cost and appraisal costs to reduce internal failure costs and External failure costs

20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 2017 8.0% 2018 6.0% 4.0% 1 2.0% 0.0% Prevention cost Appraisal cost Internal External failure cost failure cost Total Quality Costs