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?