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Three Rivers Inc. provides cable TV and Internet service to the local community. The activities and activity costs of Three Rivers are are identified.
a. Identify the cost of quality classification for each activity and whether the activity is value-added or non value-added.
| Quality Activities | Activity Cost | Quality Cost Classification | VA/NVA |
| Billing error correction | | $60,000 | | | |
| Cable signal testing | 140,000 | | |
| Reinstalling service (installed incorrectly the first time) | 40,000 | | |
| Repairing satellite equipment | 50,000 | | |
| Repairing underground cable connections to the customer | 25,000 | | |
| Replacing old technology cable with higher quality cable | 175,000 | | |
| Replacing old technology signal switches with higher quality switches | 150,000 | | |
| Responding to customer home repair requests | 30,000 | | |
| Training employees | 80,000 | | |
| Total | $750,000 | | |
b. Prepare a cost of quality report. Assume that sales are $3,000,000. 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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