Managing quality costs with the help of activity-based costing

Abstract

Journal of Electronics ManufacturingVol. 02, No. 04, pp. 153-160 (1992) PAPERSNo AccessManaging quality costs with the help of activity-based costingDANIEL M. JORGENSON and E. MICHAEL ENKERLINDANIEL M. JORGENSONHewlett Packard Company, Networked Computer Manufacturing Operation, 8000 Foothills, Blvd, Roseville, CA 95678, USA Search for more papers by this author and E. MICHAEL ENKERLINHewlett Packard Company, Networked Computer Manufacturing Operation, 8000 Foothills, Blvd, Roseville, CA 95678, USA Search for more papers by this author https://doi.org/10.1142/S0960313192000182Cited by:9 PreviousNext AboutSectionsPDF/EPUB ToolsAdd to favoritesDownload CitationsTrack CitationsRecommend to Library ShareShare onFacebookTwitterLinked InRedditEmail AbstractAs computer products mature, gain widespread user acceptance, and become more commodity-like due to industry standardization, product cost becomes an overriding aspect of success in the marketplace. Many computer companies are not inherently more expensive than their competitors. They have allowed excessive non-value added costs, i.e. cost of quality, to inflate the cost of their products. Examples of these costs include product testing, rework, and scrap. This paper describes how a Hewlett-Packard manufacturing operation utilized its activity-based cost (ABC) accounting system to identify, quantify, and allocate quality costs among its products. Having this information will allow product teams to simulate and reduce quality costs earlier in the product design phase. The key points of this paper are the following. (1) Activity-based costing provides an effective tool for measuring, analyzing, and communicating the cost of quality to product and process designers. Note: The HP cost driver accounting system that plays a prominent role in this paper was recently described in the Harvard Business Review, January-February, 1990, article entitled ‘How Hewlett-Packard gets numbers it can trust’. (2) Having a cost accounting system that provides accurate and timely cost information is not enough in today’s competitive environment. Implementing a total quality management program does not assure continuous quality improvement if you don’t have a quality measurement system. The accounting system and quality program must work together to support management efforts to increase the quality of manufacturing through better product design, and continuous improvement.This paper originally appeared in Proceedings Manufacturing Measure ments — 21st Century Metrics, Sixth Conference with Industry, 5–6 May 1992, Lehigh University, Bethlehem, PA, pp. 47–55.Keywords:Quality costsactivity based costingproduct costingtotal quality management FiguresReferencesRelatedDetailsCited By 9New Quality Cost Framework (QCF) Based on the Hybrid Fuzzy MCDM ApproachQiong Wu, Jing Xuan, Fuli Zhou, Yuanfei Mei and Jiafu Su et al.28 Mar 2022 | Computational Intelligence and Neuroscience, Vol. 2022Understanding the components and magnitude of the cost of quality in building constructionSahil Garg and Sudhir Misra3 February 2021 | Engineering, Construction and Architectural Management, Vol. 29, No. 1Managing SME with an innovative hybrid cost of quality modelMarcin Czajkowski20 Nov 2017 | Measuring Business Excellence, Vol. 21, No. 4Models for Optimization of Supply Chain Network Design Integrating the Cost of Quality: A Literature ReviewLamiae Douiri, Abdelouahhab Jabri and Abdellah El Barkany1 Jan 2016 | American Journal of Industrial and Business Management, Vol. 06, No. 08Assessing self-selection and endogeneity issues in the relation between activity-based costing and performanceAdam S. Maiga1 Dec 2014 | Advances in Accounting, Vol. 30, No. 2An improved model for the cost of qualityMohamed Khaled Omar and Sharmeeni Murgan1 Apr 2014 | International Journal of Quality & Reliability Management, Vol. 31, No. 4A review of research on cost of quality models and best practicesAndrea Schiffauerova and Vince Thomson1 Jul 2006 | International Journal of Quality & Reliability Management, Vol. 23, No. 6An integrated multidimensional process improvement methodology for manufacturing systemsK.K. Chan and T.A. Spedding1 Apr 2003 | Computers & Industrial Engineering, Vol. 44, No. 4Application of discrete event simulation to the activity based costing of manufacturing systemsT.A. Spedding and G.Q. Sun1 Jan 1999 | International Journal of Production Economics, Vol. 58, No. 3 Recommended Vol. 02, No. 04 Metrics History Received 1 May 1992 Accepted 1 July 1992 KeywordsQuality costsactivity based costingproduct costingtotal quality managementPDF download