management
Chapter 16
Total Quality Management
Teaching Notes for Cases
16-1: Precision Systems, Inc.
This case illustrates that quality cost information can play an important role in alerting top management about the importance of quality improvement in a non-manufacturing department of a manufacturing firm. The case is based on the following article:
Kalagnanam, S. S. and E. M. Matsumura, "Cost of Quality in an Order Entry Department," Journal of Cost Management (Fall 1995), pp. 68-74.
The required questions are designed to acquaint students with some of the terminology of "cost of quality" and some aspects of conducting a cost of quality study. Quality costs, defined as those that arise because poor quality may exist or does exist, have been classified into the following four categories:
Prevention (prevention of poor quality, or quality assurance);
Appraisal (inspection and testing);
Internal Failure (costs, such as rework or scrappage, for nonconforming products identified before delivery to customers);
External Failure (costs, such as warranty expenses or freight charges, for nonconforming products delivered to customers).
This case focuses on prevention activities (see question 6), as well as internal failure and external failure costs for the order entry department at Precision Systems, Inc. Internal and external failures are defined with respect to the order entry department.
Additional readings on quality costs:
Kaplan, R. S. and A. A. Atkinson, Advanced Management Accounting, 2nd ed. (Englewood Cliffs, NJ: Prentice-Hall, Inc., 1989), chapter 10.
Morse, W. J. and H. P. Roth, "Why Quality Costs are Important," Management Accounting, November 1987, pp. 42-43.
Scholtes, P. R., L. S. Weiss and S. Reynard, Quality Improvement in the Office (Madison, WE Joiner Associates, Inc., 1988).
Schonberger, R. S., "Total Quality Management Cuts a Broad Swath," Organizational Dynamics (Spring 1992), pp. 116-27.
Suggested Solutions to
Total Quality Management
Teaching Notes for Cases
16-1: Precision Systems, Inc.
This case illustrates that quality cost information can play an important role in alerting top management about the importance of quality improvement in a non-manufacturing department of a manufacturing firm. The case is based on the following article:
Kalagnanam, S. S. and E. M. Matsumura, "Cost of Quality in an Order Entry Department," Journal of Cost Management (Fall 1995), pp. 68-74.
The required questions are designed to acquaint students with some of the terminology of "cost of quality" and some aspects of conducting a cost of quality study. Quality costs, defined as those that arise because poor quality may exist or does exist, have been classified into the following four categories:
Prevention (prevention of poor quality, or quality assurance);
Appraisal (inspection and testing);
Internal Failure (costs, such as rework or scrappage, for nonconforming products identified before delivery to customers);
External Failure (costs, such as warranty expenses or freight charges, for nonconforming products delivered to customers).
This case focuses on prevention activities (see question 6), as well as internal failure and external failure costs for the order entry department at Precision Systems, Inc. Internal and external failures are defined with respect to the order entry department.
Additional readings on quality costs:
Kaplan, R. S. and A. A. Atkinson, Advanced Management Accounting, 2nd ed. (Englewood Cliffs, NJ: Prentice-Hall, Inc., 1989), chapter 10.
Morse, W. J. and H. P. Roth, "Why Quality Costs are Important," Management Accounting, November 1987, pp. 42-43.
Scholtes, P. R., L. S. Weiss and S. Reynard, Quality Improvement in the Office (Madison, WE Joiner Associates, Inc., 1988).
Schonberger, R. S., "Total Quality Management Cuts a Broad Swath," Organizational Dynamics (Spring 1992), pp. 116-27.
Suggested Solutions to
References: Barefield, J. T., C. A. Raiborn, and M. R. Kinney. 2003. Cost Accounting: Traditions and Innovations (Cincinnati, OH: Southwestern). Carr, L. P. 1995. Cost of Quality—Making It Work. Journal of Cost Management (Spring) 61-65. Horngren, C. T., S. M. Datar, and G. Foster. 2003. Cost Accounting: A Managerial Emphasis. (Englewood Cliff, New Jersey: Prentice-Hall). Institute of Management Accountants (IMA) Ittner, C. 1988. Texas Instruments: Cost of Quality (A). (Boston, MA: Harvard Business School). Kalagnanam, S. S. and E. M. Matsumura. 1995. Cost of Quality in an Order-Entry Department. Journal of Cost Management (Fall) 68-74. Keating, S., and J. Shank. 1998. Iron River Paper Mill. In Anthony, R. N., and V. Govindarajan, Management Control Systems (New York, Irwin/McGraw-Hill), pp. 646-655.