Quality Cost Reporting Flashcards
What is quality cost reporting?
A quality cost report is created to detail the various quality costs incurred by a business and can be a useful addition to management accounting information.
The report will break the costs down into the different types of quality cost; prevention, appraisal, internal failure and external failure.
This will enable management to understand the level and type of costs incurred in making sure the entity meets quality standards and also those incurred because the entity is not meeting standards.
What are the benefits of quality cost reporting?
- Identifies areas for improvement
- Increases management focus on quality issues
- Reduces operational costs
- Aids in evaluation of capital investment alternatives
- Aids development of advanced performance measures and targets
How does quality cost reporting identify areas for improvement?
The use of cost of quality reporting will enable us to identify potential areas for improvements, leading to effective quality programmes and eventually improve overall organisational performance. This is particularly important for our organisation as our quality standards are respected by our customers.
How does quality cost reporting increase management focus on quality issues?
A cost of quality report directs the attention of management to any rise in quality cost or any failure to meet quality standards. They have a better understanding of how quality is impacting the organisation and are able to take quick remedial action in the event of a quality failure.
How does quality cost reporting reduce operational costs?
We may be able to reduce operational costs by having a better awareness of costs that are being incurred. A reduction in costs along with higher quality will enhance our competitiveness.
How does quality cost reporting aid in the evaluation of capital investment alternatives?
It helps justify and steer investments towards prevention activities in order to lower quality costs. Ideally we would want to incur a prevention cost rather than an external failure cost as these are more expensive and can take longer and be more complicated to resolve. For example a damage to goodwill.
How does quality cost reporting aid in the development of advanced performance measures and targets?
The cost of quality system will also enable us to develop more advanced performance measures and targets in the areas such as customer satisfaction, production and design. Targets could be shared by all employees and would act as a motivational aid.
