The Mahola Company Operates as Three Autonomous Divisions A Prepare an Analysis of the Costs of Quality of Has

question 50

Essay

The Mahola Company operates as three autonomous divisions. Each division has a general manager in charge of product development, production, and distribution. Management recently adopted total quality management and the divisions now track, record, and analyze their costs and nonfinancial measures of quality. All three divisions are competing in a worldwide, highly competitive marketplace. Sales and quality-related data for April are summarized below.
North Division East Division West Division
$\begin{array}{|l|c|c|c|}\hline &\text {North Division}& \text {East Division}& \text {West Division}\\\hline\\\hline \text { Annual sales } &\underline{\$12,000.000}&\underline{\$9,000.000}&\underline{\$14,000.000}\\\hline \text { Costs of quality. }\\\hline\text { Setup for testing }&\$73,000&\$111,000&\$190,300\\\hline\text { Quality audits } \$78,000&260,000&142,800\\\hline \text { Failure analysis } & 125,000 & 15,950 & 93,300 \\\hline \text { Quality trairing of employees } &145,500&180,000&280,700\\\hline \text { Scrap and rework }&259,000&10,800&167,200 \\\hline \text { Preventive maintenance } & 146,000 & 139,500 & 130,900 \\\hline \text { Warranty claims } & 391,250 & 95,100 & 321,200 \\\hline\text { Customer service }&153,500&227,850&182,800 \\\hline \text { Quality engineering }&\$344,500&418,500&428,400 \\\hline\text { Prochuct simulation and development } &41,000&178,000&170,900\\\hline \text { Losses caused by vendor scrap }84,000&18,250&89,500\\\hline \text { Returned goods } &591,250&172,050&476,000\\\hline \text { Total costs of quality }&\$2,532,000&\$1,827,000&\$2,674,000\\\hline\end{array}$ $\begin{array}{|l|l|l|l|l}\hline & \text { North Division } & \text { East Division } & \text { West division } \\\hline \text { Nonfinancial measures of quality. } & & & \\\hline \text { Defective parts per million } & 4,910 & 1,704 & 3,540 \\\hline \text { Returned order percentage } & 7.40 \% & 2.10 \% & 4.20 \% \\\hline \text { Customer complaints } & 50 & 16 & 30 \\\hline \text { Number of warranty claims } & 29 & 10 & 17 \\\hline\end{array}$ a. Prepare an analysis of the costs of quality of the three divisions. Categorize the costs as follows: costs of conformance with subsets of prevention costs and appraisal costs, and costs of nonconformance with subsets of internal failure costs and external failure costs. Compute the total costs for each category for each division.
b. Compute the percentage of sales of each cost-of-quality total for each division. Round percentages to two places beyond the decimal point.
c. Interpret the cost-of-quality data for each division. Is each division's product of high or low quality? Why? Are the divisions headed in the right direction to be globally competitive?
d. Evaluate the nonfinancial measures of quality in terms of customer satisfaction. Explain your answer.

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