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Quality costs

The Hartono Corporation manufactures and sells industrial grinders. The following table presents financial information pertaining to quality in 2004 and 2005 (in thousands):

2005 2004
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Revenues $12,500 $10,000
Inspection of production 85 110
Scrap 200 250
Design engineering 240 100
Cost of returned goods 145 60
Product-testing equipment 50 50
Customer support 30 40
Rework costs 135 160
Preventive equipment maintenance 90 35
Product liability claims 100 200
Incoming materials inspection 40 20
Breakdowm maintenance 40 90
Product-testing labor 75 220
Training 120 45
Warranty repair 200 300
Supplier evaluation 50 20

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1. Classify the cost items in the table into prevention, appraisal, internal failure, or external failure categories.

2. Calculate the ratio of each COQ(cost of quality) category to revenues in 2004 and 2005. Comment on the trends in costs of quality between 2004 and 2005.

3. Give two examples of nonfinancial quality measures that Hartono Corporation could monitor as part of a total quality-control effort.

Solution Summary

The solution explains how to classify the different costs as prevention, appraisal, internal failure, or external failure.

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