Measuring Quality Costs at the Corporate Level: An Empirical Analysis of Empirical Determinants

By Tyson, Thomas | Akron Business and Economic Review, Summer 1990 | Go to article overview
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Measuring Quality Costs at the Corporate Level: An Empirical Analysis of Empirical Determinants

Tyson, Thomas, Akron Business and Economic Review

Measuring Quality Costs at the Corporate Level: An Empirical Analysis of Organizational Determinants*

Corporate accountants have been urged to extend their measurements to the areas of productivity [29], new product innovation [4], and quality [18, 23]. Two different connotations are usually attached to quality: quality of design and of conformance. Quality of design refers to the range of a product's functions, features, or characteristics; quality of conformance indicates the degree a product conforms to its specifications, regardless of the cost of inputs or range of features. This paper empirically examines five organizational factors that may facilitate the measurement of costs relating to the quality of conformance.


Accounting numbers are generally perceived to be reliable [28] and objective [20] and to focus on areas that lead directly to improved performance [9]. Individuals in quality control argue that measuring the costs of quality is as important as measuring the costs of labor and materials [8] and that this activity should become a normal accounting function [16].

Over the past five years, cost accounting practices have been widely criticized for not keeping step with the latest manufacturing technologies and management philosophies. In their recent bibliography, Deakin, Maher, and Cappel [7] list nearly 700 items published from 1984-1988 that discuss the effects of new manufacturing environment on cost accounting and accounting systems. Many of these items stress the importance of improving quality and a number encourage accountants to measure quality costs.


The quality and controllership literatures were carefully reviewed to identify organizational factors that may facilitate the measurement of quality costs. The quality literature consistently indicates that a strong, continual, top management commitment to improving quality is necessary for the successful implementation of a quality cost program [8, 11]. Similarly, Garvin [13, 14] has written that attaining high quality depends on the continual support of top management. The specific measurement of quality costs appears contingent on a strong commitment from top management to quality improvement.

Simon et al. [27] described the benefits of a distinct special studies section for undertaking discretionary activities that might include quality cost measurement. Sathe [24] indicated that Hopper found management accountants unable to become more greatly involved in decision making because of the time demanded by their required routines. Two quality control managers similarly argued that controllers often resist initiating quality measurements because of their present heavy workloads [16, 19]. Specific measurement of quality costs may be contingent on the level of departmental resources appropriated for special study activities.

Several controllership field studies [17, 27] discussed the importance of interfunction teamwork and two-way communications for increasing controller department participation in special study activities. Lundvall [21] indicated that quality cost measurement usually begins as a special study and that accountants often become aware of the need to specifically measure these costs through their interaction with quality control managers [25]. The levels of participation in interdepartmental team projects and communications between controller and quality department personnel are two factors that may affect the measurement of quality costs.

Some companies measure quality costs simply to identify their breakdown among the categories of prevention, appraisal, and failure. Others go well beyond this stage by regularly measuring quality costs and directly tying increased profits to a reduction in the total amount of these costs [6, 12]. If top management places a strong reliance on formal cost reduction programs to improve profit, quality cost measurement programs may be established.

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