Investigating the relationship between quality and quality costs in Shir Pegah Khuzestan

Dissertation of Master's Course in Accounting

Abstract

     The purpose of this research is to examine the relationship between the components of quality and quality costs in the company. In this research, the traditional method was used to collect the quality costs and the PAF model was used to determine the components of the quality costs. Research hypotheses based on a statistical sample for a manufacturing company with ISO in a three-year period from 1390 to 1392 have been tested using the correlation coefficient model. The relationship between the components of quality and quality costs separately from materials, manpower, machinery and the company as a whole has been examined. The results of the research showed that there is an inverse and significant relationship between the total costs of prevention and evaluation, and the costs of failure of materials and human resources and the company as a whole, but there is a direct and meaningful relationship in the machinery sector. Also, a direct and significant relationship was observed between the company's total evaluation and prevention costs and the quality level of the manufactured product, and an inverse and significant relationship was observed between the company's failure costs and the quality level of the manufactured product.

Key words: Quality costs, prevention costs, evaluation costs, internal failure costs, external failure costs, quality. 1-1 Introduction

Today's companies rely more and more on quality and productivity to compete globally and to remain in the so-called "world class" environment. Comprehensive quality is an effort in this direction.

One of the important and necessary tools for the successful establishment of a comprehensive comprehensive quality management system is the quality costing system. A study in consumer markets simply shows that increasing product quality is an effective way to be more present in the market. When a company is known for the high quality of its product, it can gain more market share by continuing to compete with similar competitors. Therefore, the existence of a system that provides information related to the production of quality products is vital. Quality costing is one of the tools that helps to improve the quality level and causes the identification of additional costs, wasteful activities and their elimination. The use of quality costing systems enables us to reduce costs as much as possible by better and more appropriate use of resources and facilities and investing in preventive activities, in addition to providing customer satisfaction. In short, the quality costing system provides the necessary basis for better production and with less spending (Sataish, Pourqadiri, 2017).

It is a period of time that expert managers encourage manufacturers to design the production process in such a way that instead of quality inspection at the end of the production line, quality is used in this process from the very beginning. 30 years ago, Joran[1] predicted that attention to quality will make Japan return to economic power. In the 1970s and 1980s, Japan captured market share with better products at lower prices. Japanese companies used Deming and Juran [2] and based on their theories, they raised their quality costs to 5% of total production costs. While the quality costs in American factories were about 50% of the total production costs, that is, it was 10 times more than in Japan. In the late 1970s and early 1980s, most American companies faced a crisis. They realized that goods made in the United States no longer meant the best goods. On the contrary, while after a period of time when Japanese goods were derided, now Japanese goods and the name Japan are considered to be of superior quality. And this matter caused the concern of the leaders of the United States, especially the executive directors of the institutions that used traditional management techniques.

The word cost is an unpleasant word that has not only caused economists to fear, but also always places quality advocates in a tense and doubtful atmosphere between cost with a negative charge and quality with a positive charge. They deserve a punishment.The precise explanation of these costs and the creation of information flow between different units of the company in a way that periodically, annually or case by case expresses the strengths and weaknesses of the quality system in the form of numbers and figures as effective indicators in decision-making. It is obvious that the more accurate the related information items are, the greater their ability to respond to quality system deficiencies. Therefore, management decisions are made more easily (Nikbakht, 2013).

1-2. Statement of the subject and research question

Although the implementation of quality systems has become a necessity for survival in the turbulent and competitive environment in today's era, it should be noted that the ultimate goal of such actions is to improve the organization and increase its benefits. If we consider quality as a need for organizational improvement, then quality costing can be considered an essential tool for managing organizational improvement. In fact, quality costing will make spending quality costs in the organization effective and in sync with the organization's improvement management. In other words, quality costing is a powerful tool for enlightening and informing the management to use its resources in an optimal way to improve the organization and increase its benefits (Eldridge [3], 2006). Producing a product or providing a service or performing a quality activity that provides a high degree of customer satisfaction alone is not enough. The costs of achieving such a goal should also be carefully examined so that the long-term effect of these costs on the activity of the company or organization is favorable. These costs are a correct measure to carry out quality activities. In fact, the main responsibility of management is to establish a balance between quality and the costs of achieving it. This goal can be fulfilled in the best way through the analysis of the elements of quality costs.

    In today's era, due to the global changes that have taken place in the field of technology, the rapid changes and transformations of the markets and the more competitive field of activity for economic enterprises, the concepts related to quality have gained great importance and scope. Many organizations evaluate quality as an essential pillar to achieve customer satisfaction and a reason for survival and development in competitive conditions.  Today, quality has a concept beyond the reliability of the product, and it means achieving comprehensive quality in which the performance and people of the organization are also effective (Farsijani, 2006). The most important issue in comprehensive quality management is that quality improvement is comprehensively and seriously pursued by all units of the organization and all people participate in this (Davis [4], 2003). In fact, in total quality management, the implementation and improvement of quality extends to the entire organization and is not limited to the output product. But one basic principle should not be forgotten: such measures are ultimately aimed at improving performance and increasing profitability in the organization, and this is the issue that has led to the formation and development of quality costing methods. In other words, although the goal of implementing quality systems is to achieve customer satisfaction, this goal should be realized with the lowest possible cost. (Dale and Plank, 1381).

Quality costing is a process-based costing method that conceptually seeks to measure and balance preventive costs and quality assurance costs against the costs of inappropriate quality and waste and customer dissatisfaction. In this method, which is created in the heart of the financial and industrial accounting system, the costs of carrying out activities are categorized and compared with the perspective of their impact on quality. The purpose of the quality costing system is to reduce quality costs to the lowest level. As an efficient tool, the quality costing system helps the management in determining, collecting, recording and reporting the costs of quality control and provides the basis for identifying the types of activities effective in reducing or changing the composition of its costs, analyzing them and the possibility of prioritizing quality improvement activities (Mombini, 1377). Based on this model, Joran (1962) presented a theory that shows the inverse relationship between the cost of prevention and evaluation on the one hand and the cost of failure on the other hand. Based on this, more investment in both prevention and inspection sectors will reduce failure costs. This reverse costing, which is well known and highly accepted, well expresses the concept of the optimal level of quality, which is the basis of quality costing (Chart 1-1).