1. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Cost Accounting: Foundations & Evolutions, 9e Kinney and Raiborn Chapter 17: Implementing Quality Concepts

2. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives What is quality, and from whose viewpoint should it be evaluated? What is benchmarking, and why do companies engage in it? What constitutes the total quality management philosophy? How is the Baldrige Award related to quality? What are the types of quality costs, and how are those types related? How is cost of quality measured? How are a cost management system and the balanced scorecard used to provide information on quality in an organization? How is quality instilled as part of an organization’s culture? (Appendix) What international quality standards exist?

3. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Quality The sum of all of the characteristics of a product or service that influence its ability to meet the stated or implied needs of the person acquiring it  Totality of internal processes that generate a product or service  Customer satisfaction with that product or service

4. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Quality Control Quality control — all attempts to reduce variability and product defects  Six Sigma  Statistical Process Control

5. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Statistical Process Control Analyze where fluctuations occur in processes Use control charts SPC charts require workers to respond when there are  Occurrences outside the control limits  Nonrandom patterns Workers can prevent product defects and process malfunctions

6. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Characteristics of Product Quality Objective  Performance  Features  Reliability  Conformance  Durability  Serviceability and responsiveness Subjective  Aesthetics  Perceived value Sloan Management Review

7. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Characteristics of Service Quality  All the characteristics of product quality plus:  Assurance  Tangibles  Empathy

8. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Evaluating Quality Grade  The quality level that a product or service has relative to the inclusion or exclusion of characteristics to satisfy customer needs, especially price Value  Meets the highest number of needs at the lowest possible cost (purchase price plus operating, maintenance, and disposal costs) It’s too expensive

9. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Reasons to Benchmark (slide 1 of 2) Increase awareness of the competition Understand competitors’ production and performance methods as well as cost structures Identify areas of competitors’ internal strengths and weaknesses Identify external and internal threats and opportunities Justify and accelerate a plan for continuous process improvement and change

10. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Reasons to Benchmark (slide 2 of 2) Create a framework for program and process assessment and evaluation Establish a focus for mission, goals, and objectives Establish performance improvement targets Understand customers’ needs and expectations Encourage creative thinking Identify state-of-the-art business practices and new technologies

11. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Total Quality Management (TQM) Management approach of an organization, centered on quality, based on the participation of all its members and aiming at long-term success through customer satisfaction, and benefits to all members of the organization and to society

12. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. TQM Tenets Dictate continuous improvement for an internal managerial system (plan, control, make decisions) Require participation by everyone in the organization Focus on improving goods and services from the customer’s point of view Value long-term partnerships with suppliers

13. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. The Quality System Moves from after-the-fact inspection to proactive quality assurance Emphasizes  planning for quality in every process and product  prevention  zero defects and continuous improvement Results  ability to set goals and methods for quality improvements  system for measuring quality and providing feedback on quality enhancements  encouragement of teamwork  change from product inspection and defect correction to proactive quality assurance

14. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Malcolm Baldrige National Quality Award Focuses on  Management systems  Processes  Consumer satisfaction  Business results Types of entrants  Business and not- for-profit  Education  Health care Represents Excellence

15. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Types of Quality Costs Cost of Compliance  Preventive costs — prevent product defects  Appraisal costs — monitor and compensate when prevention fails Cost of Noncompliance  Failure costs Internal losses—scrap, rework External losses — warranty work, customer complaint departments, litigation, product recalls

16. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Calculating the Total Quality Cost T = K + A + F Total Quality Cost Prevention Cost Appraisal Cost Failure Cost = ++

17. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Organizational Culture of Quality Committed and consistent top leadership Employees who are eager to meet and exceed customer expectations Work environment that cares about employees and rewards efforts to achieve high quality Empowered employees Job and quality training Pursuit of quality awards

18. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Questions What is quality? How is benchmarking used to improve quality? What are the different measures of the cost of quality?

19. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. Potential Ethical Issues Ignoring acceptable variation limits and therefore accepting defect levels that are excessive Using lower grade raw material and components than specified Using benchmarking to illegally gain information from competitors Discriminating against minority supplies Choosing to ignore internal information about defects and failures Minimizing estimates of internal and external failure costs Not supporting total quality management initiatives in company practices Selling products at low prices and attempting to recover revenue with exorbitant repair charges after warranty time period