Answers:
Traditionally, cost of quality is defined as the expenditure incurred by the producer to achieve a particular level of quality. It has been modified, and today it is defined as the expenditure incurred by the producer, user, and community to achieve a particular level of quality.
It is an important concept because managers, before making any decision related to quality, must have clear understanding of the implications of the decisions on cost. Quality cost details are also important for the following reasons:
· It is an important input while making capital budgeting and other investment decisions.
· It helps in identifying outmoded systems.
· It facilitates evaluation of profit-making opportunities.
· It assists in establishing budgetary and profit planning objectives.
· It ascertains overhead wastes related to activities not needed by the customer.
· It supports objectivity of performance appraisal mechanisms.
Quality emerged as a major business issue after the Second World War,when democratic governments laid down firm rules for fair practices in business. This allowed a healthy competition to develop. This healthy competition gave rise to ethical, efficient, and effective organisations of the modern era. Quality is a major competitive tool for such ethical organisations. It has a direct bearing on cost, which in turn is a vital factor in competition. Often, quality and costs are on the opposite ends of the argument - high quality means high cost, or low cost results in low quality. It is a no-win situation.