Example from Manufacturing Sector

Annual Quality Cost -Tire manufacturer

1. Cost of quality failures -losses

a.Defective stock $3,276 0.37
b.Repairs to product 73,229 8.31
c.Collect scrap 2,288 0.26
d.Waste-scrap 187,428 21.26
e.Consumer adjustments 408,200 46.31
f.Downgrading products 22,838 2.59
g.Customer ill will Not counted
h.Customer policy adjustment Not counted
Total $697,259 79.10%

2. Cost of appraisal

a.Incoming inspection $23,655 2.68
b.Inspection 1 32,582 3.70
c.Inspection 2 25,200 2.86
d.Spot-check inspection 65,910 7.37
Total $147,347 16.61%

3.Cost of prevention

a.Local plant quality control engineering $7,848 0.89
b.Corporate quality control engineering 30,000 3.40
Total $37,848 4.29%
Grand total $882,454 100.00%

As a result of this study,management decided to increase the budget for prevention activities.Three engineers were assigned to identify and pursue specific quality improvement projects.