Quality cost measurement under activity-based costing

The purpose of this paper is to present an integrated cost of quality - activity-based costing (COQ-ABC) framework for measuring quality costs under ABC. The main deficiencies of most COQ systems are: (1) no consensus method to allocate overhead costs to COQ elements, (2) the failure to trace quality costs to their sources, and (3) the lack of information about how indirect workers spend their time on various activities. These deficiencies can be easily overcome under ABC together with work sampling. The cost and nonfinancial information achieved from the integrated COQ-ABC system can be used to identify the magnitude of the quality improvement opportunities, to identify where the quality improvement opportunities exist, and to continuously plan the quality improvement programs and control quality costs. The ultimate goal of the integrated COQ-ABC system will be to continuously improve processes/activities/quality so that no defects at all are produced and quality cost measurement ultimately becomes unnecessary.