Question

Instructions Three Rivers Inc. provides cable TV and Internet service to the local community. The activities and activity costs of Three Rivers are identified as follows Activities Activity Cost 36,000.00 Biling error correction Cable signal testing 1,800.00 Reinstalling service (installed incorrectly the first time 8,00000 Repairing satellite equipment 7,800.00 Repairing underground cable connections to the customer 1700000 Replacing old technology cable with higher quality cable 169,000.00 ! Replacing old technology signal switches with higher quality switches 126,00000 9Responding to customer home repair requests 27000.00 Training employees 740000 11 Total 540,00000 Required: a. Identify the cost of quality classification for each activity and whether the activity is value-added or non-value-added b. Prepare a cost of quality report. Assume that sales are $2,200,000. Round percentages to one decimal place. Prepare a value-added/non-value-added analysis. d. Interpret the information in (b) and (c). Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries Amount Descriptions Appraisal External failure Internal failure Non-value-added Prevention Value-added Cost of Quality Report b. Prepare a cost of quality report. Assume that sales are $2,200,000. Round percentages to one decimal place. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries Three Rivers Inc. Cost of Quality Report Percent of Total Percent of Total Quality Cost Quality Cost Classification Quality Cost Sales Total c. Prepare a value-added/non-value-added analysis. Refer to the Amount Descriptions list provided for the exact wording of the ans entries Three Rivers Inc. Value-Added/Non-Value-Added Activity Analysis Percent Amount Category 4 Total d. Interpret the information in (b) and (c). What percentage of total costs of quality are considered to be value-added?

Answer 1

3 a) Statement showing Cost of Quality classification and Categorization in Value Added and Non Value Added Category Amount (Ś) Particulars 5 Prevention Costs: 6 Training Employees Value Added 7400 Total (A) 7 7400 8 Appraisal Costs: 9 Cable Signal Testing Value Added 91800 10 Replacing old technology cable with higher quality cable Value Added 169000 11 Replacing old technology signal switches with higher quality switches Value Added 126000 Total (B) 12 386800 13 Internal Failure Costs: 14 Billing Error correction Non Value Added 36000 15 Reinstalling Service Non Value Added 28000 16 Repairing Satellite Equipment Value Added 37800 17 Repairing underground cable connections to the customer Value Added 17000 Total (C) 18 118800 19 External Failure Costs: 20 Responding to customer home repair requests Value Added 27000 Total (D) 21 27000 22 Total Quality Costs (A+B+C+D) 540000 23

b) Three Rivers Inc. Cost of Quality Report %of % of Total Quality cost Qualification Quality Cost Total Quality Cost sales 1.4% Prevention Costs 7400 0.3% Appraisal Costs 71.6% 17.6% 386800 Internal Failure Costs 22.0% 5.4% 118800 External Failure Costs 5.0% 1.2% 27000 Total Costs 540000 Three Rivers Inc. Value-Added/Non Value Added Activity Analysis Quality cost Qualification Quality Cost Percentage Value Added Activity 88.1% 476000 C6+C9+C10+C11+C16+C17+C20 Non Value Added Activity 64000 11.9% C14+C15 Total Costs 540000 d) As per solution of part (c), 88.1% of Total Cost of Quality are considered to be value-added