Question

2. (a) The Quality Manager of ABC Company which produces components for the    automobile industry compiled the following data based on the efforts undertaken as part of the Quality Improvement programme which was introduced in Jan 2014

		2014	2015	2016	2017
	QUALITY COSTS (IN ‘000 Rs)
1	INTERNAL FAILURE	40	41	27	24
2	APPRAISAL	22	25	35	40
3	EXTERNAL FAILURE	32	30	24	18
4	PREVENTION	14	15	20	22
	ACCOUNTING COSTS (IN ‘000 Rs)
1	SALES	1800	1850	1864	1875
2	PRODUCTION	510	525	515	495

Calculate the Sales/Quality cost ratio indices and Production Cost/Quality cost ratio indices for each of the four years. Based on these indices, can the Quality Manager declare to the Management that the Quality improvement programme has been effective? Justify your reasoning.                                                                                                                      

Answer 1

The Sales/Quality cost ratio is increasing year on year, which is a positive sign. The production cost/Quality cost ratio has increased. This is a negative sign.

While evaluating the effectiveness of a quality improvement program, the production cost/quality cost ratio is more relevant. The company is not doing well on this ratio.

Therefore, the quality improvement program is ineffective.