Question

1. 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.

   Quality Control Activities	Activity Cost		Quality Cost Classification	Value-Added/ Non-Value-Added Classification
   Billing error correction	$28,600		External failure	Non-value-added
   Cable signal testing	93,500		Appraisal	Value-added
   Reinstalling service (installed incorrectly the first time)	61,500		External failure	Non-value-added
   Repairing satellite equipment	16,500		Internal failure	Non-value-added
   Repairing underground cable connections to the customer	18,600		External failure	Non-value-added
   Replacing old technology cable with higher quality cable	124,700		Prevention	Value-added
   Replacing old technology signal switches with higher quality switches	142,600		Prevention	Value-added
   Responding to customer home repair requests	34,300		External failure	Non-value-added
   Training employees	29,700		Prevention	Value-added
   Total activity cost	$550,000

   Feedback

   Correct

   b. Prepare a cost of quality report. Assume that sales are $2,200,000. If required, round percentages to one decimal place.

   Three Rivers Inc.
   Cost of Quality Report
   Quality Cost Classification	Quality Cost	Percent of Total Quality Cost	Percent of Total Sales
   Prevention	$	%	%
   Appraisal		%	%
   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	$	%
   Non-value-added		%
   Total	$	%

Answer 1

b.

Three Rivers Inc.
Cost of Quality Report
Quality Cost Classification	Quality Cost	Percent of Total Quality Cost	Percent of Total Sales
Prevention	297000	54.0%	13.5%
Appraisal	93500	17.0%	4.3%
Internal failure	16500	3.0%	0.8%
External failure	143000	26.0%	6.5%
Total	550000	100.0%	25.0%

c.

Three Rivers Inc.
Value-Added/Non-Value-Added Activity Analysis
Category	Amount	Percent
Value-added	390500	71.0%
Non-value-added	159500	29.0%
Total	550000	100.0%