Quality Cost

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.
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Quality cost has greater impact on the productivity and profit margin of the organizations.
Table 1: Range behavior of quality cost categories Total Quality Cost Harrington Fawsi Juran Prevention Costs 10% 0,5-5% [approximately equal to] 10% Evaluation Costs 35% 10-50% [approximately equal to] 10% Internal Failure Costs 7% 20-40% [approximately External Failure Costs 48% 23-40% equal to] 50% Total Quality Cost Cuatrecasas Prevention Costs <5% Evaluation Costs 10-50% Internal Failure Costs 20-40% External Failure Costs 25-40% Source: [Marrero, Y, 2010, p.
The guidelines and advice offered here will help those responsible for an organization's financial management to develop and implement a quality cost system.
The inconvenience of the traditional quality cost account is dividing cost of quality only to three main groups: cost of prevention, cost of appraisal and cost of failure.
If you can estimate the quality cost of the existing design and the new proposal, it could well be that an apparent 5% saving is more likely to be a 15% on cost!
The Quality Cost Delivery (QCD) award is given to those suppliers whose quality, cost and delivery exceed a 95% standard of excellence.
Costs associated with each quality cost category (prevention, appraisal, internal failure and external failure) should be plotted periodically as a fraction of one or more measurement bases appropriate for future use as indicators of business activity.
There are many research made and publications published related with quality cost. 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].
The book also outlines what the IRS seeks in a quality cost segregation study and report.
After having established a quality cost system, this may be associated to the iceberg analogy.
Its Quality Cost function determines the cost of finding, fixing, and preventing mistakes in manufacturing.

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