Quality cost indices are often used to measure and analyze the cost of maintaining or improving the level of quality. Such indices are computed by dividing the total cost of quality over a given period by some measure of activity during that period (for example, sales dollars). The following cost data are available for a company for the month of March. The company’s quality cost index is calculated using total cost of quality divided by sales dollars.

The quality cost index for March is:

A. 7.5

B. 6.5
C. 22.0
D. 5.9

Explanation:
The total cost of quality equals the sum of prevention costs (quality planning), appraisal costs (inspection and testing), internal failure costs (scrap and rework), and external failure costs (customer complaints and returns), or US $30,000 ($2,800 + $6,400 + $16,800 + $4,000). Thus, the quality cost index for March is 7.5 [(US $30,000 – US $400,000) x 100].