Carl Clarkson and Lenny Lenid have been assigned to review the costs of quality at the Sprotton Chemicals Ltd. for the month of September. All amounts are in thousands (000's).
Some information from a competitor, Sheltonville Industries, has been leaked. You learn that Sheltonville's costs of quality (as a percentage of total costs of quality) is 15% on external failure, 20% on internal failure, 35% on appraisal and the rest on prevention.
Required:
a. Prepare a cost of quality report for September for the Sprotton Chemicals including calculations of each cost category as a percentage of total costs of quality.
b. Compare Sprotton's approach to quality management to Sheltonville's. Comment on your findings. (What are the implications of the differences?)
Definitions:
Numeraire
A standard unit of account or measuring stick in economics used to compare the value of various goods or services.
Utility Function
A mathematical tool used in economics to represent a consumer's preference ranking of different bundles of goods.
Pareto Optimal
A state of allocation of resources from which it is impossible to reallocate to make any one individual better off without making at least one individual worse off.
Competitive Equilibrium
A state in markets where supply equals demand, and no participant has an incentive to change their behavior.
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