Quality costsThe accounting system for Dolment Co. reflected the following quality costs for Year 1 and Year 2:Customer refunds for poor product qualityFitting machines for mistake-proof operationsSupply chain management activitiesWaste disposalQuality trainingLitigation claims for product defectsYear 1 Year 2$37,000 $29,0009,400 11,8009,000 10,00044,000 36,00026,000 30,00081,00064,000a. Which of these are costs of compliance, and which are costs of noncompliance?b. Calculate the percentage change in each cost and for each category.Note: Round each percentage change to the nearest whole percentage.Note: Indicate a decrease with a negative sign.Customer refunds for poor product qualityFitting machines for mistake-proof operationsSupply chain management activitiesWaste disposalQuality trainingLitigation claims for product defectsCompliance cost categoryNoncompliance cost categoryYear 1Year 2 Percentage Change$37,000 $29,000%9,400 11,800%÷9,000 10,000%44,000 36,000%26,000 30,000%81,000 64,000%%%

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Answered: Quality costs The accounting system for…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter13: Lean Manufacturing And Activity Analysis

Section: Chapter Questions

Problem 4PB: Pareto chart and cost of quality report for a manufacturing company The president of Mission Inc....

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Pareto chart and cost of quality report for a manufacturing company The president of Mission Inc. has been concerned about the growth in costs over the last several years. The president asked the controller to perform an activity analysis to gain a better insight into these costs. The activity analysis revealed the following: The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap. Instructions 1. Prepare a Pareto chart of the company activities. 2. Classify the activities into prevention, appraisal, internal failure, external failure, and not costs of quality (producing product). Classify the activities into value-added and non-value-added activities. 3. Use the activity cost information to determine the percentages of total costs that are prevention, appraisal, internal failure, external failure, and not costs of quality. 4. Determine the percentages of total costs that are value-added and non-value-added. 5. Interpret the information.
In 20X1, Don Blackburn, president of Price Electronics, received a report indicating that quality costs were 31% of sales. Faced with increasing pressures from imported goods. Don resolved to take measures to improve the overall quality of the companys products. After hiring a consultant in 20X1, the company began an aggressive program of total quality control. At the end of 20X5, Don requested an analysis of the progress the company had made in reducing and controlling quality costs. The accounting department assembled the following data: Required: 1. Compute the quality costs as a percentage of sales by category and in total for each year. 2. Prepare a multiple-year trend graph for quality costs, both by total costs and by category. Using the graph, assess the progress made in reducing and controlling quality costs. Does the graph provide evidence that quality has improved? Explain. 3. Using the 20X1 quality cost relationships (assume all costs are variable), calculate the quality costs that would have prevailed in 20X4. By how much did profits increase in 20X4 because of the quality improvement program? Repeat for 20X5.
Kathy Shorts, president of Oliver Company, was concerned with the trend in sales and profitability. The company had been losing customers at an alarming rate. Furthermore, the company was barely breaking even. Investigation revealed that poor quality was at the root of the problem. At the end of 20x5, Kathy decided to begin a quality improvement program. As a first step, she identified the following costs in the accounting records as quality related: Required: 1. Prepare a quality cost report by quality cost category. 2. Calculate the relative distribution percentages for each quality cost category. Comment on the distribution. 3. Using the Taguchi loss function, an average loss per unit is computed to be 15 per unit. What are the hidden costs of external failure? How does this affect the relative distribution? 4. Shortss quality manager decided not to bother with the hidden costs. What do you think was his reasoning? Any efforts to reduce measured external failure costs will also reduce the hidden costs. Do you agree or disagree? Explain.
Nabors Company had actual quality costs for the year ended June 30, 20x5, as given below. At the zero-defect state, Nabors expects to spend 375,000 on quality engineering, 75,000 on vendor certification, and 50,000 on packaging inspection. Assume sales to be 25,000,000. Required: 1. Prepare a long-range performance report for 20x5. What does this report tell the management of Nabors? 2. Explain why quality costs still are present for the zero-defect state. 3. What if Nabors achieves the zero-defect state reflected in the report? What are some of the implications of this achievement?
I. Activity Costs Caused by Suppliers (testing failures and reordering as a result) Activity Testing components Reordering components II. Supplier Data Unit purchase price Units purchased Failed tests Number of reorders Alpha Electronics 125X Unit cost: $10 8.02 X 120,000 1,500 60 Alpha Electronics 30Y Costs $1,200,000 300,000 $26 67,100 Alpha Electronics 30Y 780 2,014.19 X 40 La Paz Company 125X $12 15,000 10 0 La Paz Company 30Y Required: Determine the cost of each supplier by using ABC. Round Test and Reorder rates to the nearest dollar, and final answers to the nearest cent. Alpha Electronics 125X La Paz Company 125X $28 15,000 10 0 La Paz Company 30Y
Account
Pareto Chart and Cost of Quality Report for a Manufacturing Company The president of Mission Inc. has been concerned about the growth in costs over the last several years. The president asked the controller to perform an activity analysis to gain a better insight into these costs. The activity analysis revealed the following. The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap. Required: 1. Classify the activities into prevention, appraisal, internal failure, external failure, and not costs of quality (producing product). Classify the activities into value-added and non-value added activities. Activity Activity Cost Cost of Quality Classification VA/NVA Correcting invoice errors $7,500 Disposing of incoming materials with poor quality 15,000 Disposing of scrap 27,500 Expediting late production 22,500 Final inspection 20,000 Inspecting incoming…

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