Quality costs record

From CEOpedia | Management online

The Quality costs record is the information for calculating, planning, analysis and optimization. Therefore, it should answer the questions: what kind of costs are in the enterprise? where they arise? and what is their height [1].

The rules for determining the places of recording quality costs

In determining the number of places of recording quality cost one should be guided by the principle of economy and the principle of giving expression data [2]. The second of these principles relates to the necessary amount of information that can not be neither too high nor too low. This information should be related to: company size, organizational structure and how it links with quality management system and TQM. It should also include information about the chart of accounts in the company and methods of accounting used.

Methods of keeping records of the quality costs

Records of quality costs can be based on the current chart of accounts in the company. In some cases, however, it is necessary to make changes. Then records may be conducted by: the type of costs occurring in a given company, the type of activity and media costs, or other expense recognized in respect to the products [3].

Due to the type of activity one should take into account the costs according to their actual places of origin. Recording of costs by their disclosure places is inappropriate.

The quality costs from the standpoint of their origin include: the costs of appearing before production, during production, after production and after sales. Before production and during production are the costs of prevention. During production and post production costs are estimates and internal failure costs. However, after production can occur external failure costs.

Methods of keeping records of the quality costs

Records of quality costs can take different forms depending on the needs. The methods are [4]:

Quick one-time cost of diagnosis is to determine approximately the amount of costs, and the results of registering can be used to evaluate the potential of the company. Constant uniform method of recording the cost is to conduct quality cost analysis and provide rapid response in the event of a deviation from the assumed costs. Sampling concerns on rapid one-time costs diagnosis based on accounting data.

Difficulty in recording quality costs

Difficulties in the recording quality costs most often are the result of costs of non-production activities and recording of returns (complaints). Difficulties may also arise from problems associated with determining what portion of overall costs is the cost of quality. Quality costs are part of the costs incurred by the company. They are recorded in the accounts under different headings. Therefore, you should allocate costs to the appropriate category and pay attention to the risk of double accounting for the same costs.

Examples

Registration of the costs is mostly done in manufacturing companies. However traders record only part of the cost of the reception quality check and losses from repricing goods. However they do not lead separate accounts of other costs resulting from poor quality products on sale, because all costs and losses are included in the cost of commercial risks, in which the company is interested only when they have a significant impact on profitability.

Advantages of Quality costs record

A Quality Costs Record is a document used to capture and track the costs associated with quality assurance activities. It is a valuable tool for calculating, planning, analyzing and optimizing costs incurred throughout the product lifecycle. The following are the advantages of using a Quality Costs Record:

  • It facilitates the accurate tracking of quality costs, as it captures all costs associated with quality assurance activities.
  • The Quality Costs Record allows for the comparison of current and projected quality costs, helping to identify cost-saving opportunities.
  • It provides visibility into the cost of quality, helping to identify areas of improvement and cost optimization.
  • The Quality Costs Record helps to ensure that quality is not sacrificed in order to reduce costs.
  • It provides the necessary data to evaluate the effectiveness of quality assurance activities and make informed decisions.

Limitations of Quality costs record

  • The Quality costs record provides important information for calculating, planning, analysis, and optimization, but it has several limitations.
  • Firstly, it does not provide an in-depth understanding of the cause of each quality cost, as it only shows the total cost associated with a specific quality issue.
  • Secondly, it does not provide a detailed analysis of the quality costs associated with different processes or products.
  • Thirdly, it does not provide a comprehensive view of the total quality costs incurred from all sources, as it only looks at the costs of specific quality issues.
  • Finally, it does not provide any insight into how to reduce quality costs, as it only provides a snapshot of existing costs.

Other approaches related to Quality costs record

One approach to Quality costs record is to analyze various cost categories, such as prevention costs, appraisal costs, internal and external failure costs, and overhead costs. Other approaches for Quality costs record include:

  • Activity-Based Costing (ABC): This method involves allocating costs to activities based on the number of times each activity is performed.
  • Process Improvement: This involves looking at areas where cost savings can be made through process improvement activities.
  • Target Costing: This is a cost management tool that involves setting a target cost for a product or service, and then determining the cost savings that must be achieved in order to meet that target.
  • Customer Profitability Analysis: This involves understanding how much profit a customer contributes to the business and how much it costs to serve them.
  • Quality Function Deployment: This is a process that involves identifying customer needs and then applying quality techniques to meet those needs.
  • Benchmarking: This involves comparing your performance against the performance of other organizations in order to identify opportunities for improvement.

In summary, Quality costs record involves analyzing various cost categories, such as prevention costs, appraisal costs, internal and external failure costs, and overhead costs, as well as utilizing additional methods such as Activity-Based Costing, Process Improvement, Target Costing, Customer Profitability Analysis, Quality Function Deployment, and Benchmarking. These approaches are used to identify areas for cost savings and process improvements, as well as to understand customer needs and profitability.


Quality costs record — recommended articles
Productivity report — Costing system — Segment margin — Allocated cost — Pareto analysis — Double counting — Value added statement — Design risk assessment — Pareto chart

References

Author: Teresa Spiewla

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