quality costs

Quality Cost

The expenses a company incurs to improve the quality of its products. Quality is the state of being superior to something else. For example, if a company uses a more durable raw material to make its products, the material is usually more expensive, which causes the company to incur a quality cost. However, poor quality can also result in costs. For example, customers may complain about defective products that may be replaced for free, which costs the company lost revenue.
Quality costsclick for a larger image
Fig. 74 Quality costs.

quality costs

the costs which are incurred by a firm in ensuring that its products meet customers' QUALITY requirements. Quality costs fall into three main categories.

First, prevention costs which are the costs of pre-production activities aimed at preventing defects (these include the determination of quality requirements and specifications, the creation of quality planning procedures and quality assurance systems aimed at achieving the quality objective, the training of operatives, etc).

Second, appraisal costs which are the costs associated with the evaluation of materials, processes, products and services to ensure that they conform to pre-determined specifications.

Third, failure costs which are the costs incurred when defective products are made. Failure costs themselves include both internal failure costs (costs of scrap, re-working and machine downtime) and external failure costs (warranty charges, re-turned goods and allowances).

Figure 74 depicts the relationship between the costs of prevention, appraisal and failure, and the ability of the firm to meet customers' quality requirements. When the ability to provide a quality acceptable to customers is low, quality costs are typically high, largely because of failure costs. As ability is improved by a greater investment in prevention and appraisal, failure costs can be reduced significantly leading to a marked fall in total quality costs.

References in periodicals archive ?
Quality Costs are not only an absolute measure of performance, its importance lies in indicating where it will be most beneficial corrective action for the company, and are used as indicators of the business areas for improvement in their products and processes.
The book begins with key concepts, standards, and definitions, then gives advice on implementing a pilot program, quality improvement, and reducing quality costs.
Despite that, measuring a company's quality costs is difficult.
It is essential to know the degree of clients' satisfaction, their needs and expectations so that it can highlight the quality costs, considered an important tool of quality valorization.
Quality Costs are a measure of the costs specifically associated with the achievement or non-achievement of product or service quality--including all product or service requirements established by the company and its contract with customers and society.
Measuring Quality Costs has been emphasized as an important part of quality improvement efforts since the early 1950's.
It is identified the efforts between quality cost and value by classifying the quality cost elements into "value added" and "non-value added" grounded on activity based costing (ABC); prevention-appraisal costs are value-added quality costs and failure costs are nonvalue added quality costs [7].
This article describes the four categories typically associated with quality costs, including specific recommendations for reduction of quality costs in the foundry.
In a study by Imberman and DeForest, management consultants, Evanston, IL, it was found that no manufacturing industry has poor quality costs less than 4% of sales, and some industries' poor quality costs run up over 8% of sales.
For the first six months of the 1993 fiscal year, equity sales equalled 124% of net business profits and 90% of loan quality costs of yen 65 billion.
The purposes of this article are to define and examine the relationship between quality, quality costs, and quality control, and to suggest ways to increase quality while decreasing quality costs.
Internal and external failures contribute to over 70% of the total quality costs in foundries.

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