Estimating Hidden Quality Costs with Quality Loss Functions.

While some of the product quality costs are recorded in current accounting systems, a large portion of them are not. However, meaningful understandings of these unrecorded quality costs are important for control of product quality. Recently, a Taguchi quality loss function has been proposed in the accounting literature for estimating these hidden quality costs. This new quality loss function approach measures hidden quality costs for any variation of the actual value from the target value of a designated characteristic of a product. This paper develops various forms of quality loss functions to extend the usefulness of the Taguchi quality loss function. The various asymmetric and sensitive quality loss functions developed in this paper provide not only a meaningful tool to estimate hidden quality cost structures, but also a new way of thinking about product quality. Comprehensive examples with comparisons of results are provided to show how various quality loss functions can be used to estimate hidden quality costs for effective control of product quality.