The Quality Manager of Bright (USA) Inc., Sarah McMahon, is unsure on how to analyze the cost of quality and its performance. Bright (USA) Inc. has measured its quality costs for the past two years. After the company gathers its quality cost data, it summarizes those costs using the four categories shown below: Table 2: Quality costs Prevention costs Internal failure costs Appraisal costs Last Year ($) External failure costs 462,100 823,560 537,200 This Year ($) 1,118,000 730,500 557,600 792,300 Product Development Manager at Bright (USA) Inc., Kent Duncan is considering to add self-service car wash as a new venture for the company. Kent Duncan is exploring the possibility of opening a self-service car wash and operating it for the next five years as additional revenue to the company. He has gathered the following information which is recorded below: A building in which a car wash could be installed is available under a five-year lease at a cost of $1,700 per month. Purchase and installation costs of equipment would total $200,000. In five years the equipment could be sold for about 10% of its original cost. 612,400 An investment of an additional $2,000 would be required to cover working capital needs for cleaning supplies, change funds, and so forth. Both a wash and a vacuum service would be offered. Each customer would pay $2.00 for a wash and $1.00 for access to a vacuum cleaner. The only variable costs associated with the operation would be 20 cents per wash for water and 10 cents per use of the vacuum for electricity. In addition to rent, monthly costs of operation would be: cleaning, $450; insurance, $75; and maintenance, $500. Gross receipts from the wash would be about $1,350 per week. According to the experience of other car washes, 60% of the customers using the wash would also use the vacuum. Kent, after consultation with the management, has set up a policy where the car wash will not be opened unless it provides at least a 10% return.
The Quality Manager of Bright (USA) Inc., Sarah McMahon, is unsure on how to analyze the cost of quality and its performance. Bright (USA) Inc. has measured its quality costs for the past two years. After the company gathers its quality cost data, it summarizes those costs using the four categories shown below: Table 2: Quality costs Prevention costs Internal failure costs Appraisal costs Last Year ($) External failure costs 462,100 823,560 537,200 This Year ($) 1,118,000 730,500 557,600 792,300 Product Development Manager at Bright (USA) Inc., Kent Duncan is considering to add self-service car wash as a new venture for the company. Kent Duncan is exploring the possibility of opening a self-service car wash and operating it for the next five years as additional revenue to the company. He has gathered the following information which is recorded below: A building in which a car wash could be installed is available under a five-year lease at a cost of $1,700 per month. Purchase and installation costs of equipment would total $200,000. In five years the equipment could be sold for about 10% of its original cost. 612,400 An investment of an additional $2,000 would be required to cover working capital needs for cleaning supplies, change funds, and so forth. Both a wash and a vacuum service would be offered. Each customer would pay $2.00 for a wash and $1.00 for access to a vacuum cleaner. The only variable costs associated with the operation would be 20 cents per wash for water and 10 cents per use of the vacuum for electricity. In addition to rent, monthly costs of operation would be: cleaning, $450; insurance, $75; and maintenance, $500. Gross receipts from the wash would be about $1,350 per week. According to the experience of other car washes, 60% of the customers using the wash would also use the vacuum. Kent, after consultation with the management, has set up a policy where the car wash will not be opened unless it provides at least a 10% return.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Qw.140.
Transcribed Image Text:The Quality Manager of Bright (USA) Inc., Sarah McMahon, is unsure on how to analyze the cost of quality and its
performance.
Bright (USA) Inc. has measured its quality costs for the past two years. After the company gathers its quality cost data, it
summarizes those costs using the four categories shown below:
Table 2: Quality costs
Prevention costs
Internal failure costs
Appraisal costs
External failure costs
Last Year
($)
462,100
823,560
537,200
1,118,000
This Year ($)
730,500
557,600
612,400
792,300
Product Development Manager at Bright (USA) Inc., Kent Duncan is considering to add self-service car wash as a new
venture for the company. Kent Duncan is exploring the possibility of opening a self-service car wash and operating it for
the next five years as additional revenue to the company.
He has gathered the following information which is recorded below:
A building in which a car wash could be installed is available under a five-year lease at a cost of $1,700 per month.
Purchase and installation costs of equipment would total $200,000. In five years the equipment could be sold for about
10% of its original cost.
An investment of an additional $2,000 would be required to cover working capital needs for cleaning supplies, change
funds, and so forth.
Both a wash and a vacuum service would be offered. Each customer would pay $2.00 for a wash and $1.00 for access to a
vacuum cleaner.
The only variable costs associated with the operation would be 20 cents per wash for water and 10 cents per use of the
vacuum for electricity.
In addition to rent, monthly costs of operation would be: cleaning, $450; insurance, $75; and maintenance, $500.
Gross receipts from the wash would be about $1,350 per week. According to the experience of other car washes, 60% of
the customers using the wash would also use the vacuum.
Kent, after consultation with the management, has set up a policy where the car wash will not be opened unless it
provides at least a 10% return.
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