Chapter 14, Problem 4CE

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. 1. Prepare a long-range performance report for 20x5. What does this report tell the management of Nabors?
2. 2. Explain why quality costs still are present for the zero-defect state.
3. 3. What if Nabors achieves the zero-defect state reflected in the report? What are some of the implications of this achievement?