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Keywords Quality costs, Performance appraisal, Prevention costs
Abstract This paper examines the components of quality cost (internal failure, external failure, appraisal cost, and prevention cost) in the context of two key manufacturing inputs, materials and machines; the concept is also explained for the company as a whole. The purpose of this research is to analyze the variables that impact quality in a manufacturing environment. There are three major findings in this research. First, there is an inverse relationship between appraisal cost plus prevention cost and failure cost. Second, the relationship between appraisal cost plus prevention cost and quality is positive. Finally, failure cost is negatively correlated with quality. This analysis also revealed a strong relationship between appraisal cost plus prevention cost and quality for material input, machine input, and the company. The results indicate that as the appraisal cost plus the prevention cost increases, quality improves and failure cost decreases.
Introduction
In general corporations exist to provide goods and services for the benefit of mankind. The opportunity to make a profit is the incentive for doing so. How much profit is made is a measure of how well the company is doing its job. To achieve the goal of profit maximization, a company must commit to producing its products or services at a continuously lower cost, thereby enchancing the opportunity for increasing market share. The quality cost system concept can be applied to improve productivity. There is a need for an analytical framework that explains the relationship between quality cost components and quality (appraisal cost plus prevention cost and failure cost; appraisal cost plus prevention cost and quality; and failure cost and quality). Once these relationships are defined and clearly understood, the ability of an organization to make decisions related to improving quality, reducing quality costs and increasing productivity will be substantially enhanced.
Over the past two decades, the concept of "quality cost" has been widely studied and discussed in numerous literature including Crosby (1983 quoted in Campanella, 1987a, pp. 95-7), Plunkett and Dale (1986, 1987, 1988), Grimm and Fox (1986 quoted in Campanella, 1987a, pp. 409-19), Campanella (1987b), Feigenbaum (1991), Carr (1992), Gray (1995), Diallo et al. (1995), Johnson (1995), Willis and Willis (1996), Harrington (1980 quoted in Grimm, 1987, pp. 397-412) Harrington,...