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. This evaluation should discuss the distribution of quality costs in the company, changes in the distribution over the last year, and any other information you believe would be useful to management.

Answer 1

Prevention Costs: Costs to prevent defects rather than finding and removing them from products. Example Training workers, replacing faulty machines. In 2017, Preventive costs were low and in 2018 expenditure on preventive costs was increased. it can be seen in graph also. this means it would lead to less faulty products going into production.

Appraisal Costs: Another name inspection costs. these are those cost that are incurred to identify defective products before they are shipped to customers and basically take place during manufacturing processes. costs were low in 2017 and in 2018 expenditure was increased. it can be seen in graph also. this means it would lead identification of faulty products during inspection

Internal Failure: These are linked with product failures that are found before a product leaves the factory and Require rework, repair or scrapping parts or goods. vis a vis 2017, these costs as well are increased in 2018.

External Failure: costs incurred because of delievering faulty products to customer. Ex. return and replacements.

Conclusion

because of increase in prevention, appraisal and internal failure cost in 2018 vis a vis 2017, there has been a significant reduction in external failure costs in 2018 because of which overall COST OF QUALITY has also reduced in 2018 then in 2017 i.e. from 18 to 15%.

This not only leads to reduction in cost but increase in Profit as well and most importantly the Goodwill as customer will have less chance of recieving faulty products. Brand image also improves and overall csutomer satisfaction is achieved.

Hence it is of utmost important for a company to spend on the first three costs.