Alternative Costing Part4

ACCA F2 - Management Accounting

Total Quality Management is an approach to controlling cost by conforming the quality of product and services as expected by the customers. It initiates with the needs and demands of customers and drives employees to deliver expected value with minimum waste of resources (including human). It is not a one off procedure and should not be seen as a once done and forgotten practice. There is not only one rigid and defined practice for quality management.

Total Quality Management originated in Japan in 1950s. It encourages active participation of every stakeholders of an organisation (especially; employees, customers and suppliers). Delivery of quality material form vendor, efficient contribution toward output by employees and active involvement of customer to provide feedback are fundamental grounds for TQM. Scheduled quality check, continuous improvement, prevention of errors before their occurrence are the features of TQM. Management should therefore develop organisational culture, which promotes active participation towards quality improvement.

Quality improvement does not necessarily mean spending more than earned revenue to achieve 100% quality for marketed product. Quality management helps maximize the quality of the product maintaining optimal mix of quality costs. Quality cost is the mix of conformance costs and non-conformance costs. They are further divided as follows:

Cost of conformance:

Ø  Prevention costs - cost incurred to prevent faults before product is finalized. E.g. Training, re-design

Ø  Appraisal costs - cost incurred in inspection and testing of product until finalization. E.g. Supervision, Inspection

Cost of non-conformance:

Ø  Internal failure costs - cost incurred to correct the defects for final product which do not meet the standard when finished processing. E.g. Rework, Stock handling for defect piece

Ø  External failure costs - cost incurred to product which do not meet the standard when customer receive it. E.g. Warranty, Customer support for defects

CPA Ireland Article: Total Quality Management and its implications for ManagementAccountants

CIMA Article: Quality streak