Quality Cost Report,
Taguchi Loss Function Kathy Shorts, president of Oliver Company, was concerned with the trend in sales and profitability. The company had been losing customers at an alarming rate. Furthermore, the company was barely breaking even. Investigation revealed that poor quality was at the root of the problem. At the end of 2015, Kathy decided to begin a quality improvement program. As a first step, she identified the following costs in the accounting records as quality related:
2015
Sales (621,000 units @ $100) $62,100,000
Retesting 1,925,100
Rework 2,359,800
Vendor certification 807,300
Consumer complaints 1,552,500
Warranty 2,173,500 T
est labor 1,738,800
Inspection labor 1,676,700
Design reviews 310,500
1. Prepare a quality cost report by quality cost category. Round percentages to one decimal place if rounding is required. For example, 5.78% would be entered as "5.8".
|
quality costs |
total quality costs |
percentage sales |
| prevention costs |
|
|
|
| vendor certificate |
807300 |
|
|
| design review |
310500 |
1117800 |
1.8% |
| appraisal costs: |
|
|
|
| test labor |
1738800 |
|
|
| inspection labor |
1676700 |
3415500 |
5.5% |
| internal failure costs: |
|
|
|
| retesting |
1925100 |
|
|
| rework |
2359800 |
4284900 |
6.9% |
| external failure costs: |
|
|
|
| consumer complaints |
1552500 |
|
|
| warranty |
2173500 |
3726000 |
6.0% |
| total quality costs |
|
12544200 |
20.2% |
2. Calculate the relative distribution percentages for each quality cost category. Round percentages to one decimal place if rounding is required. For example, 5.789% would be entered as "5.8".
| Prevention |
|
% |
| Appraisal |
|
% |
| Internal failure |
|
% |
| External failure |
|
% |
3. Using the Taguchi loss function, an average loss per unit is computed to be $14 per unit. What are the hidden costs of external failure?