Quality Cost
Lander Company had sales of $48 million in 2001. In 2008, sales had increased to $60 million. A quality-improvement program was implemented in 2001. Overall conformance quality was targeted for improvement. The quality costs for 2001 and 2008 follow. Assume any changes in quality costs are attributable to improvements in quality.
Required
1. Compute the quality costs/sales ratio for each year. Is this type of improvement possible?
2. Calculate the relative distribution of quality costs by category for 2001 (quality costs by category/total quality costs). What do you think of the relative cost dis- tribution? How do you think quality costs will be distributed as the company approaches a zero-defects state?
3. Calculate the relative distribution of costs by category for 2008. What do you think of the level and distribution of quality costs? Do you think further reduc- tions are possible?
4. Suppose that the CEO of Lander received a bonus equal to 10 percent of the quality cost savings each year. Do you think gainsharing is a good or bad idea? What risks are there, if any, to gainsharing?
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