Akuntansi Manajemen Edisi 8 oleh Hansen & Mowen Bab 15 Quality Costs And Productivity

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PowerPoint Presentation by
Gail B. Wright
Professor Emeritus of Accounting
Bryant University
© Copyright 2007 Thomson South-Western, a part of The
Thomson Corporation. Thomson, the Star Logo, and
South-Western are trademarks used herein under license.
STUDENT EDITION
MANAGEMENT
ACCOUNTING
8th EDITION
BY
HANSEN & MOWEN
15 QUALITY COSTS AND PRODUCTIVITY

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LEARNING OBJECTIVES
1. Identify & describe the 4 types of quality
costs.
2. Prepare a quality cost report; differentiate
between acceptable quality level & total
quality control.
3. Tell why quality cost information is needed
& show how it is used.
4. Explain what productivity is; calculate the
impact of productivity changes on profits.

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WEIGHING COSTS & BENEFITS
Managers need to know what quality costs
are & how they change over time
Costs of quality
Studies suggest that cost of quality production
might be as much as 20% – 30% of sales
Benefits of quality
Competitive dimension
LO 1

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DIMENSIONS OF QUALITY: 1
Performance: how consistently a product
functions
Aesthetics : appearance of tangible products,
facilities, communication materials
Serviceability: ease of maintaining, repairing
product
Features of quality design: characteristics that
differentiate between similar products
LO 1
Continued
Aesthetics

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DIMENSIONS OF QUALITY: 2
Reliability: probability that product, service
will perform intended function for specified
length of time
Durability: length of time a product functions
Quality of conformance : measure of how a
product meets its specifications
Fitness for use: suitability of product for
advertised functions
LO 1
Quality of conformance

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DEFECTIVE PRODUCT:
Definition
Is one that does not conform to
specifications. Zero defects is
the goal.
LO 1

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What are costs of quality?
Costs of quality exist because poor
quality does or may exist:
• Control activities to prevent,
detect poor quality.
• Failure activities
are responses to
poor quality.
LO 1

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CATEGORIES OF QUALITY
COSTS
1. Prevention costs: incurred to prevent poor quality
2. Appraisal costs
: incurred to determine whether
products, services conform to requirements,
customer needs
3. Internal failure costs: incurred when non-conformance
is discovered & product, service re-worked,
scrapped, etc.
4. External failure costs: incurred when products fail
to conform after delivery and recalled
LO 1
Appraisal

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CLASSIFYING QUALITY COSTS
Observable
Costs available in accounting records
Hidden
Significant
Not directly available in accounting records
Estimated
Multiplier method
Market research
Taguchi quality loss function
LO 1

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FORMULA: Multiplier Method
Multiplier method estimates quality costs as
some multiple of measured failure costs.
LO 1
Total external failure cost:
= k (Measured external failure costs)

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How does market research
estimate hidden quality
costs?
Market research uses customer
surveys & interviews of sales
staff to project future profit
losses.
LO 1

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What assumption does the
Taguchi quality loss
function make?
Taguchi quality loss function
assumes that variations from
target value of quality
characteristic causes hidden
quality costs regardless of
specification limits.
LO 1

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FORMULA: Taguchi Function
Taguchi quality loss function estimates hidden
costs of poor quality.
LO 1
[Quality loss * Actual value of quality
characteristic] L(y)
= a proportional constant multiplier of
external cost failure structure * (difference
between actual and target value squared)
L(y) = k(y-T)2

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ACCEPTABLE QUALITY
LEVEL (AQL): Definition
Is the optimal balance
between control costs &
failure costs.
LO 2

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Is there a problem with the
ACL (traditional) view of
quality?
AQL encouraged lower quality
levels by accepting production
of a given number of defective
units.
LO 2

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ZERO DEFECTS MODEL:
Definition
Claims that it is cost
beneficial to reduce non-conforming
units to zero.
LO 2

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Is there a problem with the
zero defects model?
Zero defects model understates
quality costs & the potential for
savings from efforts to improve
quality.
LO 2

18. REDUCING QUALITY COSTS
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Take direct attack on failure costs to drive
them to zero
Invest in “right” prevention activities to bring
about improvement
Reduce appraisal costs according to results
achieved
Continuously evaluate, redirect prevention
efforts to gain further improvement
LO 2

19. LO 2
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What is the strategy for
reducing costs based on?
The strategy is based on the premise
that a) there is a root cause for each
failure, b) causes are preventable,
and c) prevention is always cheaper.

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ABM & OPTIMAL QUALITY
COSTS
ABM classifies costs as value-added &
non-value-added and recommends
non-value-added costs be eliminated.
 Value-added quality costs
 Prevention activities, when performed
efficiently
 Non-value-added quality costs
 Appraisal costs
 Failure costs (both internal & external)
LO 2

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TQC COMPONENT GRAPH
LO 2
EXHIBIT 15-8
Over time, quality
costs shift from non-value-
added to value-added
(prevention)
costs.

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What are principal
objectives of reporting
quality costs?
Principal objectives are to
improve & facilitate a)
managerial planning, b) control,
and c) decision making.
LO 3

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TOTAL PRODUCTIVE
EFFICIENCY
When concerned with productive efficiency,
2 conditions must be satisfied:
 Technical efficiency: For any mix of inputs
that will produce a given output, no more of
any 1 input is used than necessary to
produce the output
 Input trade-off efficiency: Given the
mixes that satisfy the first condition, the
least costly mix is chosen.
LO 4

24. PARTIAL MEASURES: Analysis
LO 4
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Conclusions that can be drawn about partial
measures:
 Existence of trade-offs mandates total
measure of productivity for assessing merits
of productivity decisions
 Because of possibility of trade-offs,
financial productivity must be measured

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TOTAL PRODUCTIVITY
MEASUREMENT: Definition
Is measuring productivity for
all inputs simultaneously.
LO 4

26. PROFIT-LINKED PRODUCTIVITY
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MEASUREMENT: Definition
Is measuring the amount of
profit change attributable to
productivity change.
LO 4

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PROFIT-LINKAGE RULE:
Definition
States that productivity change is
the difference between
[Cost of inputs without
productivity change – cost of
inputs actually used].
LO 4

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FORMULA: Profit Recovery
Profit recovery is the change in revenue minus a
change in the cost of inputs .
LO 4
Profit recovery
= Profit change – Profit linked productivity change
= ($1,510,000 – $450,000)
= $1,060,000

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CHAPTER 15
THE END