Name Muhammad Kashif Rasheed

Roll No BsMs 1819

Technology Mechanical 6th Semster
Suject    Inspection & Quality Control
Assignment No 2 Home Take Paper
Teacher Prof Adeel Shahzad Sb
Sunday, January 31, 2021

The Superior College of

Technology Lahore
Explain in detail quality related
costs i.e.
prevention,appraisal,external
and internal

Understand Quality Costs

• Understand quality Costs enables you to

– Understand hidden costs

– Reduce and eliminate unnecessary cost

• Prevent problems from happening

• Management responsibility to enable this

• Quality costs are real and estimated at:

– 25% of costs in manufacturing

– 35% of costs in service industry

• Quality costs can be categorized to enable better Understanding.

WHY CALCULATE QUALITY COST
• Management will give special attention when quality is measured in
monetary terms

• Quality costing is one of the tools

• To provide initial assessments and hard evidence that improvement is

needed or had been made

• To monitor the effectiveness of quality improvement initiatives

• To be used in a generic term by senior management shareholders,   

and financial institutions, so that they can readily

understand implication of quality in the term of money

• Cost of quality failure is calculated as a percentage of profit or annual

turnover

• It is easy to understand

• By front-line operator

• By middle management
BENEFITS OF USING QUALITY COSTING
• Greater accuracy in the evaluation and forecasting of

resource use

• Justification for investment in the prevention and

Appraisal of failures

• Ability to cost and compare performance across all

departments functions and activities

• Identification and prioritization of activities, processes

and departments in terms of corrective action,

Investment, or quality improvement initiatives

BENEFITS OF USING QUALITY COSTING

• Ability to set cost-reduction targets and then to measure and report
progress

• Ability to produce “local” data which improves understanding of

resource

Utilization objectives and targets at all levels throughout the company

• Provision of data to support formal quality management system

(including, especially; those based upon the ISO9000)
• Enable decisions about quality to be made in an objective and
systematic manner

• Promoting TQM and a company-wide quality improvement culture

COST OF QUALITY
 Quality costs are defined as costs associated with non-achievement
of product/service quality. In simple terms,

Quality cost is the cost of poor products/services.

 The cost of poor quality can add to other costs such as design,
production, maintenance, inspection, sales, etc. Quality costs cross

department boundaries by involving all activities of the organization –

marketing, purchasing, design, manufacturing,

Service, etc.

 The price of nonconformance (Philip Crosby) or the cost of poor

Quality (Joseph Juan), the term 'Cost of Quality', refers to the costs

Associated with providing poor quality product or service.

Customer’s seeknout the highest quality product

Improved quality that exceeds customer expectations will

Generate more revenues that exceed the cost of quality.

TOTAL QUALITY MANAGEMENT
(TQM)
W. Edwards Deming proposed that

Improving quality reduces cost and

Improves profitability. Quality can be and should be improved

Continuously .Quality

Total Revenues & Costs

RETURN ON QUALITY (ROQ)

Profit is maximized at the optimum quality level.

The optimum quality level is always achieved before maximum

attainable profit is reached.

Quality Total Revenues & Costs Revenues Cost Max Profit

Optimum Quality

COST OF QUALITY

• Cost of Achieving Good Quality

• Prevention costs
• Costs incurred during product design

• Appraisal costs

• Costs of measuring, testing, and analyzing

• Cost of Poor Quality

• Internal failure costs

• include scrap, rework, process failure, downtime, and price reductions

• External failure costs

• include complaints, liability, returns, warranty claims, and lost sales

PREVENTION COSTS
• Quality planning costs

• Costs of developing and implementing quality management program

• Product-design costs

• Costs of designing products with quality characteristics

• Process costs

• Costs expended to make sure productive process

conforms to quality specifications

• Training costs

• costs of developing and putting on quality training

Programs for employees and management

• Information costs

• costs of acquiring and maintaining data related to

quality, and development of reports on quality performance

EXAMPLES OF PREVENTION COST

• Application screening

• Capability studies

• Controlled storage

• Design review

• Equipment maintenance & repair

• Field testing

• Fixture design and fabrication

• Forecasting

• Housekeeping

• Job descriptions

• Market analysis

• Pilot projects

• Procedure writing

• Prototype testing
• Procedure reviews

• Quality incentives

• Safety reviews

• Time and motion studies

• Survey

• Quality training

• salesperson evaluation and selection

• Personnel reviews

APPRAISAL COSTS
• Inspection and testing

• costs of testing and inspecting materials, parts, and

product at various stages and at the end of a process

• Test equipment costs

• costs of maintaining equipment used in testing quality

characteristics of products

• Operator costs

• costs of time spent by operators to gather data for

testing product quality, to make equipment adjustments to

maintain quality, and to stop work to assess quality

EXAMPLES OF APPRAISAL COST
• Audit

• Document checking

• Diagram checking

• Equipment calibration

• Final inspection

• In-process inspection

• Laboratory test

• Personnel testing

• Procedure testing

• Prototype inspection

• Receiving inspection

• Shipping inspection

INTERNAL FAILURE COSTS

• Scrap costs
• costs of poor-quality products that must be discarded, including labor,
material, and indirect costs

• Rework costs

• costs of fixing defective products to conform to quality specifications

• Process failure costs

• of determining why production process is producing

poor- quality products

• Process downtime costs

• costs of shutting down productive process to fix problem

• Price-downgrading costs

• costs of discounting poor-quality products—that is,selling products as

“seconds”

EXTERNAL FAILURE COSTS

• Customer complaint costs

• costs of investigating and satisfactorily responding to a

customer complaint resulting from a poor-quality product

• Product return costs

• costs of handling and replacing poor-quality products returned

customer

• Warranty claims costs

• costs of complying with product warranties

• Product liability costs

• litigation costs resulting from product liability and customer injury

• Lost sales costs

• costs incurred because customers are dissatisfied with poor

quality products and do not make additional purchase.

Defects, Scrap, Rework, Inspection, Returns, Warranty, Quality

Assurance Prevention Design Review, Zero Defects Program,

Supplier Training, Supplier Evaluation, Specification Review,

Quality Audits, Preventive Maintenance, Engineering Changes,

Product Liability, Increased Overhead Appraisal Vendor Surveillance,

Receiving Inspection, Product Acceptance, Process

Control, Inspection Labor, Quality Control Labor, Testing Equipment

Costs

External Failure
Consumer Affairs, Purchase Changes, Service after Sales, Product
Liability, Lost Market Share Delivery Delay

Internal Failure
Downtime, Engineering Changes, Excess Inventory, Disposal Costs,

Reinsertion

CLASSIFYING QUALITY COSTS

Preventing Poor Quality (Comparison)Failure Costs

• Internal

 External

Failure Costs

Repair Costs

Appraisal Costs

Prevention Costs

Before Quality

Cost , Alignment

After Quality

Cost

Alignment