Elijah Electronics makes wireless headphone sets. The firm produced 27,000 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah sold 25,380 units through regular market channels, but 270 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $144,000 on prevention costs and $72,000 on quality appraisal. There were no customer returns. An income statement for the year follows. Sales Regular channel $5,076,000 Seconds 128,250 Scrap 9,450 $5,213,700 Cost of goods sold Original production costs $1,725,840 Rework costs 37,800 Quality prevention and appraisal 216,000 $1,979,640 Gross margin $3,234,060 Selling and administrative expenses (all fixed) 882,000 Profit before income taxes $2,352,060 Compute the total pre-tax profit lost by the company in its first year of operations by selling defective units as seconds or as scrap rather than selling the units through regular channels. $ Compute the total failure cost for the company in its first year. $ Compute total quality cost incurred by the company in its first year. $
Elijah Electronics makes wireless headphone sets. The firm produced 27,000 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah sold 25,380 units through regular market channels, but 270 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $144,000 on prevention costs and $72,000 on quality appraisal. There were no customer returns. An income statement for the year follows. Sales Regular channel $5,076,000 Seconds 128,250 Scrap 9,450 $5,213,700 Cost of goods sold Original production costs $1,725,840 Rework costs 37,800 Quality prevention and appraisal 216,000 $1,979,640 Gross margin $3,234,060 Selling and administrative expenses (all fixed) 882,000 Profit before income taxes $2,352,060 Compute the total pre-tax profit lost by the company in its first year of operations by selling defective units as seconds or as scrap rather than selling the units through regular channels. $ Compute the total failure cost for the company in its first year. $ Compute total quality cost incurred by the company in its first year. $
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter8: Budgeting For Planning And Control
Section: Chapter Questions
Problem 26E: Ingles Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other...
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- Elijah Electronics makes wireless headphone sets. The firm produced 27,000 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah sold 25,380 units through regular
market channels , but 270 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $144,000 on prevention costs and $72,000 on quality appraisal. There were no customer returns. An income statement for the year follows.
Sales |
||
Regular channel |
$5,076,000 |
|
Seconds |
128,250 |
|
Scrap |
9,450 |
$5,213,700 |
Cost of goods sold |
||
Original production costs |
$1,725,840 |
|
Rework costs |
37,800 |
|
Quality prevention and appraisal |
216,000 |
$1,979,640 |
Gross margin |
$3,234,060 |
|
Selling and administrative expenses (all fixed) |
882,000 |
|
Profit before income taxes |
$2,352,060 |
- Compute the total pre-tax profit lost by the company in its first year of operations by selling defective units as seconds or as scrap rather than selling the units through regular channels. $
- Compute the total failure cost for the company in its first year. $
- Compute total quality cost incurred by the company in its first year. $
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