Minturn Enterprises, Inc., operates as three autonomous companies, each with a chief executive officer who oversees its operations. At a recent corporate meeting, the company CEOs agreed to adopt total quality management and to track, record, and analyze their costs and nonfinancial measures of quality. All three companies are operating in highly competitive markets. Sales and quality-related data for September follow.
|
Carbondale
|
Wolcott
|
Silverthorne
|
|
Company
|
Company
|
Company
|
|
Annual sales
|
$11,600,000
|
$13,300,000
|
$10,800,000
|
|
Costs of quality
|
|
|
|
|
Vendor audits
|
$ 69,000
|
$ 184,800
|
$ 130,800
|
|
Quality audits
|
58,900
|
115,550
|
141,700
|
|
Failure analysis
|
188,500
|
92,400
|
16,350
|
|
Design review of products
|
80,500
|
176,700
|
218,000
|
|
Scrap and rework
|
207,000
|
160,800
|
21,200
|
|
Quality-certified suppliers
|
49,200
|
105,600
|
231,600
|
|
Preventive maintenance
|
92,000
|
158,400
|
163,500
|
|
Warranty adjustments
|
149,550
|
105,600
|
49,050
|
|
Product recalls
|
201,250
|
198,000
|
80,050
|
|
Quality training of
|
|
|
|
|
employees
|
149,500
|
237,600
|
272,500
|
|
End-of-process
|
|
|
|
|
sampling and testing
|
34,500
|
145,200
|
202,700
|
|
Reinsertion of rework
|
126,500
|
66,000
|
27,250
|
|
Returned goods
|
212,750
|
72,600
|
16,350
|
|
Customer complaint
|
|
|
|
|
processing
|
109,250
|
162,450
|
38,150
|
|
Total costs of quality
|
|
|
|
|
Nonfinancial measures
|
|
|
|
|
of quality
|
$ 1,728,400
|
$ 1,981,700
|
$ 1,609,200
|
|
|
|
|
Number of warranty claims
|
61
|
36
|
12
|
|
Customer complaints
|
107
|
52
|
18
|
|
Defective parts per
|
|
|
|
|
million
|
4,610
|
2,190
|
1,012
|
|
Returned orders
|
9.20%
|
4.10%
|
0.90%
|
Required
1. Prepare an analysis of the costs of quality for the three companies. Categorize the costs as (a) costs of conformance, with subsets of prevention costs and appraisal costs, or (b) costs of nonconformance, with subsets of internal failure costs and external failure costs. Compute the total costs in each category for each company.
2. For each company, compute the percentage of sales represented by prevention costs, appraisal costs, total costs of conformance, internal failure costs, external failure costs, total costs of nonconformance, and total costs of quality.
3. Interpret the cost-of-quality data for each company. Is its product of high or low quality? Why? Is each company headed in the right direction to be competitive?
4. Manager Insight: Evaluate the nonfinancial measures of quality in terms of customer satisfaction. Are the results consistent with your analysis in 3?
Explain your answer.