Rhyil Corporation has started operations in the current year (Year 1). The company manufactures and sells fridge freezers. Rhyil Corporation is a subsidiary of a well-known electrical appliances manufacturing company. Because of this connection, Rhyil Corporation easily finds customers. The company currently sells its fridge freezers to grocery stores and food-processing companies. In the last two quarters of the year, all of Ryhil’s customers have complained about the quality of the fridge freezers supplied by the company. Customer complaints concern poor cooling and a bad smell emanating from the fridge freezers. The customers are losing sales because of the inferior quality of the fridge freezers and, hence, have decided to cancel their contracts with Rhyil Corporation. Top management of Rhyil’s parent company is worried about the performance of Rhyil Corporation. It is also unhappy about the quality measures applied and quality costs incurred by Rhyil Corporation before the fridge freezers are sold to its customers. Top management of the parent company has asked the management of Rhyil Corporation to provide details of the quality costs incurred by Rhyil in the current year. The quality costs incurred by Rhyil Corporation in the current year are given below:

Top management of the parent company has suggested that Rhyil Corporation extend its research and development team to help it detect issues in the fridge freezers it manufactures. The parent company has also advised that the workers involved in the manufacturing process should meet on a regular basis to discuss ways to improve the quality of the fridge freezers manufactured. As Rhyil Corporation is currently on the verge of losing its customers, the company has approached an external advisor. Based on the external advisor’s inputs, Rhyil Corporation has decided to use the total quality management technique (TQM).

Required
1. Which costs should Rhyil Corporation incur to achieve high quality conformance?
2. The management of Rhyil Corporation wants to identify defective fridge freezers before they are shipped to the grocery stores and food-processing companies. Which costs will help in identifying such products?
3. Which techniques will help the workers of Rhyil Corporation detect whether a process in the manufacture of fridge freezers is under or not under control?
4. A high percentage of fridge freezers manufactured by Rhyil Corporation is defective. Determine if this is an indication of low or high quality of conformance and total quality cost. On which type of costs did the company spend the maximum amount?
5. Top management of Rhyil Corporation has decided to revamp the manufacturing process by implementing the total quality management (TQM) approach. Some of your colleagues are unfamiliar with TQM. What are the main points you would tell them about TQM?
6. The total sales value of Rhyil Corporation is £20,000,000 in Year 1. Rhyil Corporation determines each quality cost as a percentage of the total sales value. Calculate the percentage of external failure costs in Year 1.
7. Based on the external advisor’s inputs, Rhyil Corporation has modified its distribution of quality costs. The Details of the estimated quality costs to be incurred by Rhyil Corporation in Year 2 are given below:
(a) The total sales value remains the same.
(b) The external failure costs as a percentage of the total sales value will be 9.50%.
(c) The internal failure costs as a percentage of the total sales value will be 12.50%.
(d) The prevention costs incurred in the year will be £2,500,000.
(e) The appraisal costs incurred in the year will be £2,000,000. Identify the change in the quality costs in Year 2 from the quality costs incurred in Year 1.
8. Based on the external advisor’s inputs, Rhyil Corporation has modified its distribution of quality costs.
Details of the estimated quality costs to be incurred by Rhyil Corporation in Year 2 are given below:
(a) The total sales value remains the same.
(b) The external failure costs as a percentage of the total sales value will be 9.50%.
(c) The internal failure costs as a percentage of the total sales value will be 12.50%.
(d) The prevention costs incurred in the year will be £2,500,000.
(e) The appraisal costs incurred in the year will be £2,000,000.
Outline the quality costs incurred in Year 1 and the estimated quality costs in Year 2.

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Cost of quality Disposal of defective products Liability arising from defective products Lost sales arising from a reputation for poor quality Final product testing and inspection Systems development Warranty repairs and replacements Retesting of reworked products Returns and allowances arising from quality problems Maintenance of test equipment Debugging of software Quality engineering Technical support provided to suppliers Field testing and appraisal at customer site Cost of field servicing and handling complaints Reinspection of reworked products £ 600,000 850,000 500,000 900,000 800,000 1,200,000 250,000 650,000 450,000 150,000 350,000 500,000 250,000 450,000 800,000