Example from Manufacturing Sector

Annual Quality Cost -Tire manufacturer

1. Cost of quality failures -losses

a.Defective stock $3,276 0.37
b.Repairs to product 73,229 8.31
c.Collect scrap 2,288 0.26
d.Waste-scrap 187,428 21.26
e.Consumer adjustments 408,200 46.31
f.Downgrading products 22,838 2.59
g.Customer ill will Not counted
h.Customer policy adjustment Not counted
Total $697,259 79.10%

2. Cost of appraisal

a.Incoming inspection $23,655 2.68
b.Inspection 1 32,582 3.70
c.Inspection 2 25,200 2.86
d.Spot-check inspection 65,910 7.37
Total $147,347 16.61%

3.Cost of prevention

a.Local plant quality control engineering $7,848 0.89
b.Corporate quality control engineering 30,000 3.40
Total $37,848 4.29%
Grand total $882,454 100.00%

As a result of this study,management decided to increase the budget for prevention activities.Three engineers were assigned to identify and pursue specific quality improvement projects.

Prevention Costs.

These are cost incurred to keep failure and appraisal costs to a minimum.

1.Quality planning
2.New-product review
3.Process planning
4.Process control
5.Quality audits :Evaluating the execution of activities in the overall quality plan.
6.Supplier quality evaluation
7.Training

Appraisal Costs

These are the costs incurred to determine the degree of conformance to quality requirements.

1.Incoming inspection and test.
2.In-process inspection and test
3.Final inspection and test
4.Document review :Examination of paperwork to be sent to customer
5.Balancing:Examination of various accounts to assure internal consistency
6.Product quality audits
7.Maintaining accuracy of test equipment
8.Inspection and test materials and services : Materials and supplies in inspection and test work (e.g x-ray film) and services (e.g., electric power)
9.Evaluation of stocks :Testing products in field storage or in stock to evaluate degradation.