Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Chapter 19, Problem 19.21E
Costs of quality, quality improvement. iCover produces bags for carrying laptop computers. iCover sells 1,000,000 units each year at a price of $20 per unit and a contribution margin of 40%.
To respond to customer complaints, iCover’s mangers want to modify the production processes to produce higher-quality products.
The current costs of quality are as follows:
| Prevention costs | $400,000 |
| Appraisal costs | $150,000 |
| Internal failure costs | |
| Rework | $325,000 |
| Scrap | $ 75,000 |
| External failure costs | |
| Product repair costs | $400,000 |
| Lost sales from customer returns | $650,000 |
- 1. Which costs of quality category are managers focusing on? Why?
Required
- 2. If the improvements result in a 55% decrease in product repair costs and a 70% decrease in lost sales from customer returns, what is the impact on the overall COQ and the company’s operating income? What should iCover do? Explain.
- 3. Calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs and as a percentage of sales before and after the change in the production process. Comment briefly on your results.
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Which costs of quality category are managers focusing on? Why?
Millennium Printers Inc. manufactures color laser printers. Model L-1819 presently sells for $150 and has a total product cost of $120, as follows:
Direct materials
$90
Direct labor
20
Factory overhead
10
Total
$120
It is estimated that the competitive selling price for color laser printers of this type will drop to $140 next year. Millennium Printers wants to establish a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost reduction ideas:
Purchase a plastic printer cover with snap-on assembly. This will reduce the amount of direct labor by nine minutes per unit.
Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $3 per unit.
Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 45% of the factory overhead is related to running injection molding machines.
The direct…
Millennium Printers Inc. manufactures color laser printers. Model L-1819 presently sells for $150 and has a total product cost of $120, as follows:
Direct materials
$90
Direct labor
20
Factory overhead
10
Total
$120
It is estimated that the competitive selling price for color laser printers of this type will drop to $140 next year. Millennium Printers wants to establish a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost reduction ideas:
Purchase a plastic printer cover with snap-on assembly. This will reduce the amount of direct labor by nine minutes per unit.
Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $3 per unit.
Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 45% of the factory overhead is related to running injection molding machines.
The direct…
Chapter 19 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 19 - Describe two benefits of improving quality.Ch. 19 - Prob. 19.2QCh. 19 - Name two items classified as prevention costs.Ch. 19 - Give two examples of appraisal costs.Ch. 19 - Distinguish between internal failure costs and...Ch. 19 - Describe three methods that companies use to...Ch. 19 - Companies should focus on financial measures of...Ch. 19 - Give two examples of nonfinancial measures of...Ch. 19 - Give two examples of nonfinancial measures of...Ch. 19 - When evaluating alternative ways to improve...
Ch. 19 - Distinguish between customer-response time and...Ch. 19 - Prob. 19.12QCh. 19 - Give two reasons why delays occur.Ch. 19 - Companies should always make and sell all products...Ch. 19 - Prob. 19.15QCh. 19 - Rector Corporation is examining its quality...Ch. 19 - Six Sigma is a continuous quality improvement...Ch. 19 - Costs of quality. (CMA, adapted) Osborn, Inc.,...Ch. 19 - Costs of quality analysis. Adirondack Company...Ch. 19 - Costs-of-quality analysis. Safe Travel produces...Ch. 19 - Costs of quality, quality improvement. iCover...Ch. 19 - Prob. 19.22ECh. 19 - Prob. 19.23ECh. 19 - Waiting time. Its a Dogs World (IDW) makes toys...Ch. 19 - Waiting time, service industry. The registration...Ch. 19 - Waiting time, cost considerations, customer...Ch. 19 - Nonfinancial measures of quality and time. For the...Ch. 19 - Nonfinancial measures of quality, manufacturing...Ch. 19 - Statistical quality control. Harvest Cereals...Ch. 19 - Quality improvement, Pareto diagram,...Ch. 19 - Quality improvement, relevant costs, and relevant...Ch. 19 - Quality improvement, relevant costs, and relevant...Ch. 19 - Waiting times, manufacturing cycle times. The...Ch. 19 - Prob. 19.34PCh. 19 - Manufacturing cycle times, relevant revenues, and...Ch. 19 - Compensation linked with profitability, waiting...Ch. 19 - Ethics and quality. Weston Corporation...Ch. 19 - Prob. 19.38P
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