Question

Spectra Company is examining its quality spending for the current year. It has summarized its spending as follows: prevention, $150,000; appraisal, $50,000; internal failure, $100,000; and external failure, $180,000. Next year, Spectra plans to increase its spending on prevention activities by 25 percent. This increased spending will reduce external failure costs by 40 percent. The costs for appraisal and internal failure will both increase by 5 percent due to cost increases in Spectra’s operations.

What is the projected cost of quality for the upcoming year? Is the increased spending on prevention activities beneficial in terms of overall costs of quality.

Answer 1

existing quality costs = 150,000 + 50,000 + 100,000 + 180,000 =>480,000.

the following is the calculation of quality cost for the coming year:

prevention (150,000+25%)	187,500
appraisal (50,000 +5%)	52,500
internal failure (100,000+5%)	105,000
external failure (180,000-40%)	108,000
total quality cost next year	453,000

Yes increased spending on prevention activities is beneficial in terms of overall cost of qualilty.

SInce the overall quality cost reduced by (480,000 - 453,000) =>$27,000