Classifying quality costs and using these costs to make decisionsLoiselle manufactures high-quality speakers. Suppose Loiselle is considering spending the following amounts on a new quality program:It also expects this program to avoid lost profits from the following:RequirementsClassify each of these costs into one of the four categories of quality costs (prevention, appraisal, internal failure, or external failure).Should Loiselle implement the quality program? Give your reasons. Additional 20 minutes testing for each speaker$ 625,000Negotiating and training suppliers to obtain higher-qualitymaterials and on-time delivery430,000Redesigning the speakers to make them easier to manufacture1,250,000Loiselle expects this quality program to save costs as follows:Reduce warranty repair costs$ 275,000Avoid inspection of raw materials580,000Avoid rework because of fewer defective units825,000 ofLost profits due to disappointed customersLost production time due to rework$ 920,000278,000

Following is the presentation of classification of costs under respective heads: Formulation is as…

Answered: Additional 20 minutes testing for each…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Classifying quality costs and using these costs to make decisions

Loiselle manufactures high-quality speakers. Suppose Loiselle is considering spending the following amounts on a new quality program:

It also expects this program to avoid lost profits from the following:

Requirements

Classify each of these costs into one of the four categories of quality costs (prevention, appraisal, internal failure, or external failure).
Should Loiselle implement the quality program? Give your reasons.

Additional 20 minutes testing for each speaker
$ 625,000
Negotiating and training suppliers to obtain higher-quality
materials and on-time delivery
430,000
Redesigning the speakers to make them easier to manufacture
1,250,000
Loiselle expects this quality program to save costs as follows:
Reduce warranty repair costs
$ 275,000
Avoid inspection of raw materials
580,000
Avoid rework because of fewer defective units
825,000

of
Lost profits due to disappointed customers
Lost production time due to rework
$ 920,000
278,000

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