Acme Materials Company manufactures and sells synthetic coatings that can withstand high temperatures. Its primary customers are aviation manufacturers and maintenance companies. The following table contains financial information pertaining to cost of quality (COQ) in 20X1 and 20X2 (in thousands of dollars): 20X1 20X2 Sales $ 15,300 $ 19,300 Materials inspection 230 53 In-process (production) inspection 153 118 Finished product inspection 180 63 Preventive equipment maintenance 13 53 Scrap (net) 430 230 Warranty repairs 630 380 Product design engineering 143 200 Vendor certification 27 53 Direct costs of returned goods 205 73 Training of factory workers 33 133 Product testing—equipment maintenance 53 53 Product testing labor 140 83 Field repairs 63 33 Rework before shipment 170 193 Product-liability settlement 290 53 Emergency repair and maintenance 130 68 Classify the cost items in the table into cost-of-quality (COQ) categories. Calculate the ratio of each COQ category to revenues in each of the 2 years. Calculate the percentage change in each COQ category and total COQ and comment on the results: Percentage change in total COQ as a percentage of sales, from 20X1 to 20X2; Total COQ in 20X2 expressed as a percentage of 20X1 sales dollars; Percentage change in total prevention costs, 20X1 to 20X2; Percentage change in total appraisal costs, 20X1 to 20X2; Percentage change in total internal failure costs, 20X1 to 20X2; Percentage change in total external failure costs, 20X1 to 20X2.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Acme Materials Company manufactures and sells synthetic coatings that can withstand high temperatures. Its primary customers are aviation manufacturers and maintenance companies. The following table contains financial information pertaining to cost of quality (COQ) in 20X1 and 20X2 (in thousands of dollars):

	20X1	20X2
Sales	$ 15,300	$ 19,300
Materials inspection	230	53
In-process (production) inspection	153	118
Finished product inspection	180	63
Preventive equipment maintenance	13	53
Scrap (net)	430	230
Warranty repairs	630	380
Product design engineering	143	200
Vendor certification	27	53
Direct costs of returned goods	205	73
Training of factory workers	33	133
Product testing—equipment maintenance	53	53
Product testing labor	140	83
Field repairs	63	33
Rework before shipment	170	193
Product-liability settlement	290	53
Emergency repair and maintenance	130	68

Classify the cost items in the table into cost-of-quality (COQ) categories.
Calculate the ratio of each COQ category to revenues in each of the 2 years.
Calculate the percentage change in each COQ category and total COQ and comment on the results:
1. Percentage change in total COQ as a percentage of sales, from 20X1 to 20X2;
2. Total COQ in 20X2 expressed as a percentage of 20X1 sales dollars;
3. Percentage change in total prevention costs, 20X1 to 20X2;
4. Percentage change in total appraisal costs, 20X1 to 20X2;
5. Percentage change in total internal failure costs, 20X1 to 20X2;
6. Percentage change in total external failure costs, 20X1 to 20X2.