Costing and Economics Essay Example | Topics and Well Written Essays - 1000 words

Costing and economic science - Essay Example barroom Costs The planned costs incurred by an organization to ensure that errors atomic number 18 not made at any of the various stages during the delivery process of that product or attend to to a client. The delivery process may embarrass design, development, production and shipping. Examples of barroom costs include commandment and training, continuous improvement efforts, quality administration staff, process control, market research, field testing and preventive maintenance. mischance Costs The costs incurred by a company because the product or service did not knock against the requirements and the product had to be fixed or replaced or the service had to be repeated. These failure costs mass be further subdivided in to two groups - Internal or External failures.Internal failures include tot every(prenominal)y the costs resulting from the failures that are found before the product or service reaches the client. Examples incl ude scrap, rework, extra inventory, fasten stations, re-design, salvage, corrective action reports and overtime due to nonconforming product or service.External failures are all the costs incurred by the company resulting when the customer finds the failure. These external failure costs do not include any of the personal costs of the customer. Examples of these costs include warranty, customer complaint administration, replacement product, recalls, shipping costs, compend of warranty data, customer follow-up and field service departments. b) Relationship between Failure Costs and Prevention Costs The following sketch illustrates that actual performance can fall short of customer mirth either because of quality of design failure or because of conformance quality failures.Actual Design guestPerformance Specifications Satisfaction Conformance role Quality of Design Failure FailureConformance Quality refers to the performance of a product or service relative to its design and produ ct specifications. For example, if a photocopying apparatus mishandles paper or breaks down, it fails to satisfy conformance quality. Products not conforming to specifications moldiness be repaired, reworked, or scrapped at an additional cost to the organization. If non conformance errors remain after the product is shipped and the product breaks down at the customer site even greater repair costs as well as the loss of customer good will (often the highest quality cost) may result. Since as outlined above, there exists a strong affinity between prevention costs and failure costs, to ensure that actual performance achieves customer satisfaction companies must first design products to satisfy the customers through quality of designs, and they must then meet design specifications though conformance quality. Thus it may be seen that there is a direct relationship between the prevention cost and failure costs and if the prevention costs are not taken care of by the company, it may lea d to the incurring of additional quality costs in the form of internal or external failure costs.