Question

Cost of Quality and Value-Added/Non -Value-Added Reports for a Service Company 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: a. Identify the cost of quality classification for each activity and whether the activity is value-added or non-value-added. Value-Added / Activity Quality Cost Non-Value-Added Quality Control Activities Cost Classification Classification Billing error correction $24,500 Cable signal testing 91,800 Reinstalling service (installed incorrectly the first 52,600 time) 35,700 Repairing satellite equipment Repairing underground cable connections to the customer Replacing old technology cable with higher quality cable Replacing old technology signal switches with 124,800 higher quality switches 29,400 Responding to customer home repair requests 26,100 Training employees $510,000 Total activity cost Next Previous Check My Work 5 more Check My Work uses remaining 5:59 PM b. Prepare a cost of quality report. Assume that sales are $2,550,000. If required, round percentages to one decimal place. Three Rivers Inc. Cost of Quality Report Quality Cost ClassificationQuality Cost Percent of Total Quality Cost Percent of Total Sales Prevention Appraisal Internal failure External failure c. Prepare a value-added/non-value-added analysis. Three Rivers Inc. Value-Added/ Non-Value-Added Activity Analysis Percent Amount Category Next Previous 5 more Check My Work uses remaining Check My Work Internal failure External failure Total c. Prepare a value-added/non-value-added analysis. Three Rivers Inc. Value-Added/Non-Value-Added Activity Analysis Category Amount Percent Value-added Total d. What percentage of total costs of quality are considered to be value-added? Next Previous 5 more Check My Work uses remaining. Check My Work 6:00 PM /18/2019 2 99+

Answer 1

Understanding value added activities Value added activity is an activity that 1 if happened something should change 2 should not be a rework step i.e. done for first time 3 customer cares to pay for the work done All other activities are to be classified as non-value added activities

1 Activities 2 Billing error correction 3 Cable signal testing 4 Reinstalling services 5 Repairing satellite equipment 6 Repairing underground cable connections to the customer 7|Replacing old technology cable with high technology cable 8Replacing old technology cable switches to higher quality switches124,800 Appraisal 9 Responding to customer home repair requests Activity CoQuality Cost Classificatid Tvpe of activi Remarks 24,500 External Failure Non value added activity Rework step Non value added activity Customer will not care to pay Non value added activity Rework step Non value added activity Rework step Non value added activity Rework step Value added activity Customer cares to pay Value added activity Customer cares to pay Non value added activity Rework step Non value added activity Customer will not care to pay 91,800 Appraisal 52,600 Internal Failure 35,700 Internal Failure 15,900 |Internal Failure 09,200 Appraisal 29,400 Internal Failure 10 Training emplovees 26,100 Prevention costs Total 510,000

Cost quality report Percent of Percent Quality Cost Classification uaity total ualit of total Cost sales 5% Prevention costs 26,100 1% (26,100/2,550,000) 64% Appraisal 325,800 13% Internal Failure 133,600 26% 5% 24,500 External Failure 5% 1% 100% 20% Total 510,000

Value Added/ Non value added activities 03 Category Amount Percent Value added 54% 276,000 46% Non value added 234,000 100% 510,000 What percentage of total costs of activity are considered to be value added 54%