Costs of Quality in our Production Processes – Business Management Assignment

Financial management

Introduction

You are employed by a firm that produces tangible products. These products are then sold to a consuming populace that is unaffected by place, income, sex, race, age, or any environmental concerns. These products are acquired and used across the spectrum of consumers.
Requirements

Your submission must be your original work. No more than a combined total of 30% of the submission and no more than a 10% match to any one individual source can be directly quoted or closely paraphrased from sources, even if cited correctly. An originality report is provided when you submit your task that can be used as a guide.

You must use the rubric to direct the creation of your submission because it provides detailed criteria that will be used to evaluate your work. Each requirement below may be evaluated by more than one rubric aspect. The rubric aspect titles may contain hyperlinks to relevant portions of the course.

Prepare a memo (1-3 pages) to your supervisor that addresses the following:

A. Identify the three types of costs when quality considerations are made.
B. Explain each of these types of costs using examples.
C. Evaluate the three types of costs considering the trade-offs within manufacturing a product and/or producing a service.

SOLUTION:

To: Supervisor
From: Kitty
Re: Costs of quality in our production processes.
Dear Supervisor,

This memo is in regard to the costs incurred by our company in the production of the tangible products that we offer to the consumers of our target market. Though our product is unaffected by various factors of the market such as place, income, sex, and race, etc. its price and quality are highly interrelated.

The cost of quality or cost of avoiding poor quality gives us an estimate of how the resources of our organization are used to avoid poor quality products. By knowing this, we can estimate the savings when implementing new steps for improving our work processes. The types of costs when quality considerations are made in the organization can be categorized under prevention costs, failure costs and appraisal costs.

Following are the details for the costs categories
Prevention costs: These costs relate to the cost which our company incurs to avoid quality problems. These costs are planned and incurred before the operations in the organization began. The cost incurred on planning the specifications for raw material and the final product cost related to the creation of a quality system in the organization, and cost related to training and development of people to maintain the quality is some good examples of Prevention cost.

Failure costs: These are the cost incurred by the company to remedy the defects found in the product. If the defect is discovered before the delivery of the product then it is termed as internal failure costs. On the other hand, if the defect is discovered by the customer then the costs incurred are termed as external failure cost.

Internal failure costs will be incurred by the company if defects are found in the final product before it is delivered to the customers. These costs will occur when the operations in the organization fail to reach the set quality standards. These costs are incurred in the form of waste, scrap, rework on the product, and expenses on the analysis of the failure itself, etc.

External costs will be incurred by the company to resolve the issues discovered by the customers. These costs happen when the operations of the company do not meet the set standards of working and also the quality control fails to detect defects in the manufacturing process itself. Some good examples of external costs of the company are costs incurred on repair and service of the product, warranty claims by the customers to replace the product, and costs related to handling customer service and support for resolving the issues faced.

Appraisal costs: These are the costs that the company will incur on the measurement and monitoring of the processes related to quality management in the company. Some examples of the appraisal costs are costs related to verification of processes, quality audits, and supplier ratings.

The costs incurred in the activities to avoid poor quality products in the company are well justified in terms of the value they generate in return. It is good to evaluate the trade-offs in relation to the costs incurred and value generated, this can help the company in decision making regarding the implementation of cost of quality in the company. Below is the trade-off evaluation of each cost as discussed earlier and the value they generate.

Prevention costs are the costs which are incurred by the company on engineers and workmen so that product quality is maintained from the initial stages of the manufacturing process until the final outcome of the processes. To evaluate the trade-offs, if this cost is not incurred and there is no one to control the quality processes then the cost to the company will drastically rise in terms of defective products.

This cost will include everything from raw material cost, acquisition costs, and processing costs, etc. To conclude, it is a better option for the company to incur prevention costs so that it does not have to pay heavily at the end of the manufacturing cycle.

Cost related to replacement and repair of the products manufactured takes a toll on the time, money, and brand name of the organization. As both factors including time invested and the cost incurred in the development of a defective product cannot be gotten back, the company must always try to avoid them.

It is best for the company to spend on making sure that all processes in the company maintain quality and the product finally developed does not have any defects. The costs incurred under failure costs are way more beneficial and worthy for the organization than spending on repair and replacements of the product.

Appraisal costs are associated with the audit and inspection of the work processes targeted towards ensuring the product quality. The processes must be audited regularly so that it is ensured that the products manufactured are correct for the very first time. The appraisal cost is justified by the fact that the defective products will cost more in terms of loss in sales due to bad relations with the consumer and spoiled brand name. Instead incurring cost on appraisal will prove to be effective when the products are made up of the standards set.

When quality considerations are made in the organization it is always good to evaluate all the factors involved. The quality improvement programs if implemented successfully in the organization can reduce the time and resources wastage on repair and replacements. Doing this the cost incurred on maintenance of quality can contribute to the profits for the company. Once the system is established it must be made dynamic so that it has a long term positive impact on the goals of the organization.

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