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Cost of Quality and Value-Added/Non-Value-Added Reports for a Service Company

Three Rivers Inc. provides cable TV and Internet service to the local community. The activities and activity costs of Three Rivers are identified as follows:

a. Identify the cost of quality classification for each activity and whether the activity is value-added or non-value-added.

Quality Control Activities	Activity Cost		Quality Cost Classification	Value-Added/ Non-Value-Added Classification
Billing error correction	$38,300
Cable signal testing	92,800
Reinstalling service (installed incorrectly the first time)	82,300
Repairing satellite equipment	29,000
Repairing underground cable connections to the customer	24,900
Replacing old technology cable with higher quality cable	112,100
Replacing old technology signal switches with higher quality switches	128,100
Responding to customer home repair requests	45,900
Training employees	26,600
Total activity cost	$580,000

b. Prepare a cost of quality report. Assume that sales are $2,320,000. If required, round percentages to one decimal place.

Three Rivers Inc.
Cost of Quality Report
Quality Cost Classification	Quality Cost	Percent of Total Quality Cost	Percent of Total Sales
Prevention	$	%	%
Appraisal		%	%
Internal failure		%	%
External failure		%	%
Total	$	%	%

c. Prepare a value-added/non-value-added analysis.

Three Rivers Inc.
Value-Added/Non-Value-Added Activity Analysis
Category	Amount	Percent
Value-added	$	%
Non-value-added		%
Total	$	%

d. What percentage of total costs of quality are considered to be value-added?

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