Case study: Cost of quality in order entry department
Precision Systems, Inc.
Q. 2 Flow diagram of activities
Q. 3: Internal failure
1. Incomplete information on purchase order 2. Transposition of prices on purchase order 5. Freight terms missing on purchase order 10. Customer number terminated on database 8. Credit approval missing 12. Part number mismatch on purchase order External failure on the order acknowledgement
How to identify Internal and External Failures
a) Concept given: when orders are going to departments further ‘downstream’ b) Responsibility: research – reviewing, data collection and analysis, etc.
Who must record these errors and costs?
a) Internal Failure: Order Entry staff
b) External Failure: management accountants in relevant downstream departments
Departments or individuals and involved to make improvement a) Sale representatives, managers of Order Entry Department (Internal) b) Managers or supervisors in other downstream departments (External).
Q 1 the important role of allocating cost to order entry errors A) Distribution of error costs; clarifying the future focus B) Managers’ attention of the amount of order error cost C) Pushing managers to take actions on the order entry error
Q.5 Cost of correcting errors
* Pertains to the cost of poor quality or poor information. * Internal & external failure costs: Telephone bills, erroneous shipments, rework, material disposals, sales returns, possibly even scrap and finished goods write-downs. * Opportunity costs: lost contribution margin from current and future sales, cost of duplication in manufacturing, costs associated with delay payments.
* Training programs aimed at sales reps.(PA)
* Rewards error free handlers
* Set up basic instructions e.g. exchangeability of parts, part numbers, discounts. * Internal customers provide feedback frequently....
References: Kelly, K. O. (2007). Feedback and Incentives on Nonfinancial Value Drivers: Effects on Managerial Decision Making. Contemporary Accounting Research, 24(2), 523-556.
Lambert, R. A. (1998). Customer Satisfaction and Future Financial Performance. Discussion of Are Nonfinancial Measures Leading Indicators of Financial Performance? An Analysis of Customers Satisfaction. Journal of Accounting Research,36(3), 37-46.
Oliver, J. & Qu, W. (1999). Cost of quality reporting: some Australian evidence. International journal of applied quality management, 2(2), 233-250.
Schonberger, R.S. (1992). Total Quality Management Cuts a Broad Swath – Through Manufacturing and Beyond. Organizational Dynamics, 116-127
Please join StudyMode to read the full document