Management Accounting Best Practices: A Guide for the Professional Accountant

Chapter 12

Quality Decisions

The cost of quality can comprise an extremely large proportion of company expenditures, and yet is so diffused throughout the organization that it is difficult to compile. The accountant may be called on to determine which costs should be included in the cost of quality, as well as to develop a quality reporting system. Other likely tasks for the accountant include how to assign the correct costs to scrap and where to place quality review workstations in the production area in order to maximize profitability. This chapter provides solutions to all of these issues.

The following table itemizes the section number in which the answers to each question posed in this chapter can be found:

Section	Decision
12-1	What are the various types of quality?
12-2	How do I create a quality reporting system?
12-3	What is the cost of scrap?
12-4	How should I measure post-constraint scrap?
12-5	Where should I place quality review workstations?

12-1 WHAT ARE THE VARIOUS TYPES OF QUALITY?

There are four types of cost categories into which quality costs fall. It is useful to split quality costs into these categories, for there are so many subcategories that it can be difficult to track them all without this method of organization.

The first category of costs is prevention costs. These are the costs that a company incurs to ensure that product failures of various kinds do not occur either during the production process or when in the hands of a customer. ...