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In response to intensive foreign competition, the management of Florex Company has attempted over the past year to improve the quality of its products. A statistical process control system has been installed and other steps have been taken to decrease the amount of warranty and other field costs, which have been trending upward over the past several years. Costs relating to quality and quality control over the last two years are given below: Inspection Quality engineering Depreciation of test equipment Rework labor Statistical process control Cost of field servicing Supplies used in testing Systems development Warranty repairs Net cost of scrap Product testing Product recalls Disposal of defective products Costs (in thousands) This Year Last Year $ 1,152 $ $ $ 810 $ 540 $ 675 1,170 $0 1,440 $45 $ 630 $ 3,870 $ 630 $ 990 $ 2,610 $ 900 $ 810 $ 270 $ 1,890 $ 405 $ 1,260 $ 63 $ 900 $ 1,710 $ 1,260 $1,440 $ 1,080 $ 900 Sales have been flat over the past few years, at $90,000,000 per year. A great deal of money has been spent in the effort to upgrade quality and management is anxious to see whether or not the effort has been effective

In response to intensive foreign competition, the management of Florex Company has attempted over the past year to improve the quality of its products. A statistical process control system has been installed and other steps have been taken to decrease the amount of warranty and other field costs, which have been trending upward over the past several years. Costs relating to quality and quality control over the last two years are given below: Inspection Quality engineering Depreciation of test equipment Rework labor Statistical process control Cost of field servicing Supplies used in testing Systems development Warranty repairs Net cost of scrap Product testing Product recalls Disposal of defective products Costs (in thousands) This Year Last Year $ 1,152 $ $ $ 810 $ 540 $ 675 1,170 $0 1,440 $45 $ 630 $ 3,870 $ 630 $ 990 $ 2,610 $ 900 $ 810 $ 270 $ 1,890 $ 405 $ 1,260 $ 63 $ 900 $ 1,710 $ 1,260 $1,440 $ 1,080 $ 900 Sales have been flat over the past few years, at $90,000,000 per year. A great deal of money has been spent in the effort to upgrade quality and management is anxious to see whether or not the effort has been effective

FINANCIAL ACCOUNTING
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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### Florex Company Quality Improvement Initiative In response to intensive foreign competition, the management of Florex Company has undertaken significant efforts over the past year to improve the quality of its products. Among these efforts, a statistical process control system was installed, and additional measures were implemented to reduce warranty and other field costs, which have been trending upward over the past several years. Below is a detailed table showing the costs associated with quality and quality control over the past two years: #### Costs (in thousands) | Category | Last Year | This Year | |-----------------------------------|-----------|-----------| | Inspection | $810 | $1,152 | | Quality engineering | $540 | $810 | | Depreciation of test equipment | $675 | $270 | | Rework labor | $1,170 | $1,890 | | Statistical process control | $0 | $405 | | Cost of field servicing | $1,440 | $1,260 | | Supplies used in testing | $45 | $63 | | Systems development | $630 | $900 | | Warranty repairs | $3,070 | $1,710 | | Net cost of scrap | $630 | $1,260 | | Product testing | $960 | $1,440 | | Product recalls | $2,610 | $1,080 | | Disposal of defective products | $0 | $900 | Sales have remained static over the past few years at $90,000,000 per year. A substantial amount of money has been invested in the effort to enhance quality, and management is keen to determine if these efforts have been effective. This table indicates a comprehensive overview of the expenditures dedicated to various aspects of quality control. Notably, there has been a significant increase in the costs for inspection, statistical process control, systems development, and product testing. Conversely, there has been a substantial decrease in costs related to depreciation of test equipment and warranty repairs, indicating potential improvements in product reliability and reduction in post-sale issues. Overall, this data helps illustrate the financial impact of Florex Company’s quality improvement strategies and offers insights into areas where the company has made significant investments to enhance product quality and reduce associated costs. The management will continue to monitor these costs to evaluate the effectiveness of these initiatives
Transcribed Image Text:### Florex Company Quality Improvement Initiative In response to intensive foreign competition, the management of Florex Company has undertaken significant efforts over the past year to improve the quality of its products. Among these efforts, a statistical process control system was installed, and additional measures were implemented to reduce warranty and other field costs, which have been trending upward over the past several years. Below is a detailed table showing the costs associated with quality and quality control over the past two years: #### Costs (in thousands) | Category | Last Year | This Year | |-----------------------------------|-----------|-----------| | Inspection | $810 | $1,152 | | Quality engineering | $540 | $810 | | Depreciation of test equipment | $675 | $270 | | Rework labor | $1,170 | $1,890 | | Statistical process control | $0 | $405 | | Cost of field servicing | $1,440 | $1,260 | | Supplies used in testing | $45 | $63 | | Systems development | $630 | $900 | | Warranty repairs | $3,070 | $1,710 | | Net cost of scrap | $630 | $1,260 | | Product testing | $960 | $1,440 | | Product recalls | $2,610 | $1,080 | | Disposal of defective products | $0 | $900 | Sales have remained static over the past few years at $90,000,000 per year. A substantial amount of money has been invested in the effort to enhance quality, and management is keen to determine if these efforts have been effective. This table indicates a comprehensive overview of the expenditures dedicated to various aspects of quality control. Notably, there has been a significant increase in the costs for inspection, statistical process control, systems development, and product testing. Conversely, there has been a substantial decrease in costs related to depreciation of test equipment and warranty repairs, indicating potential improvements in product reliability and reduction in post-sale issues. Overall, this data helps illustrate the financial impact of Florex Company’s quality improvement strategies and offers insights into areas where the company has made significant investments to enhance product quality and reduce associated costs. The management will continue to monitor these costs to evaluate the effectiveness of these initiatives
### Quality Cost Report for Florex Company #### Overview The Quality Cost Report for Florex Company helps in monitoring and analyzing the costs associated with the quality management aspects within the organization. The report is divided into categories such as prevention costs, appraisal costs, internal failure costs, and external failure costs. Each category records the costs for the last year and the current year. #### Report Structure The report is structured into various rows and columns. Each row represents a specific type of cost under prevention, appraisal, internal failure, and external failure. Each column is divided into "Amount (in thousands)" and "Percent of Sales" for better clarity on the financial impact relative to sales figures. ### Detailed Breakdown **1. Prevention Costs:** - These are costs incurred to prevent defects in products or services. - For both "Last Year" and "This Year," the report lists the amount (in thousands) and the corresponding percentage of sales. | | Last Year Amount (in thousands) | Last Year Percent of Sales | This Year Amount (in thousands) | This Year Percent of Sales | |----------------|---------------------------------|----------------------------|---------------------------------|----------------------------| | Various Items | | | | | | Total Prevention Costs | 0 | 0.00 | 0 | 0.00 | **2. Appraisal Costs:** - These costs are associated with measuring, evaluating, or auditing products or services to ensure conformance to quality standards and performance requirements. - Similar to prevention costs, they are reported for both last year and this year in terms of amount and percentage of sales. | | Last Year Amount (in thousands) | Last Year Percent of Sales | This Year Amount (in thousands) | This Year Percent of Sales | |----------------|---------------------------------|----------------------------|---------------------------------|----------------------------| | Various Items | | | | | | Total Appraisal Costs | 0 | 0.00 | 0 | 0.00 | **3. Internal Failure Costs:** - Internal failure costs are those incurred to correct defects before the product or service is delivered to the customer. - Recorded in terms of last year and current year's financial figures and percentage of sales. | | Last Year Amount (in thousands) | Last Year Percent of Sales | This Year Amount (in thousands) | This Year Percent of Sales |
Transcribed Image Text:### Quality Cost Report for Florex Company #### Overview The Quality Cost Report for Florex Company helps in monitoring and analyzing the costs associated with the quality management aspects within the organization. The report is divided into categories such as prevention costs, appraisal costs, internal failure costs, and external failure costs. Each category records the costs for the last year and the current year. #### Report Structure The report is structured into various rows and columns. Each row represents a specific type of cost under prevention, appraisal, internal failure, and external failure. Each column is divided into "Amount (in thousands)" and "Percent of Sales" for better clarity on the financial impact relative to sales figures. ### Detailed Breakdown **1. Prevention Costs:** - These are costs incurred to prevent defects in products or services. - For both "Last Year" and "This Year," the report lists the amount (in thousands) and the corresponding percentage of sales. | | Last Year Amount (in thousands) | Last Year Percent of Sales | This Year Amount (in thousands) | This Year Percent of Sales | |----------------|---------------------------------|----------------------------|---------------------------------|----------------------------| | Various Items | | | | | | Total Prevention Costs | 0 | 0.00 | 0 | 0.00 | **2. Appraisal Costs:** - These costs are associated with measuring, evaluating, or auditing products or services to ensure conformance to quality standards and performance requirements. - Similar to prevention costs, they are reported for both last year and this year in terms of amount and percentage of sales. | | Last Year Amount (in thousands) | Last Year Percent of Sales | This Year Amount (in thousands) | This Year Percent of Sales | |----------------|---------------------------------|----------------------------|---------------------------------|----------------------------| | Various Items | | | | | | Total Appraisal Costs | 0 | 0.00 | 0 | 0.00 | **3. Internal Failure Costs:** - Internal failure costs are those incurred to correct defects before the product or service is delivered to the customer. - Recorded in terms of last year and current year's financial figures and percentage of sales. | | Last Year Amount (in thousands) | Last Year Percent of Sales | This Year Amount (in thousands) | This Year Percent of Sales |
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