Question

Requirement 1. Prepare a Cost of Quality (COQ) report. In addition to calculating the total costs of each category, calculate the percentage of COQ category of the total COQ. (Round the percentage to the one tenth of a percent, X.X%. If a box is not used in the table leave the box empty, do not select a label or enter a zero.) Gooding Cost of Quality Report Costs Incurred Total Costs of Quality Percentage of Total Costs of Quality (Rounded) Prevention Costs: Total prevention costs Appraisal Costs: Total appraisal costs

Answer 1

Gooding Cost of Quality Report
	Costs (incurred)	Total costs of quality	Percentage of total costs of quality
Prevention costs:
Design engineering	85000
Total prevention costs		85000	9.2%
Appraisal costs:
Testing and inspection	175000
Total appraisal costs		175000	18.9%
Internal failure costs:
Rework (internal)	70000
Total internal failure costs		70000	7.6%
External failure costs:
Rework (external)	234000
Lost profits due to poor reputation	360000
Total external failure costs		594000	64.3%
Total costs of quality		924000	100%

Design engineering = hours spent by engineers improving design * design engineer’s labor rate = 1000*85 = 85000

Testing and inspection = number of units manufactured * testing and inspection hours per unit * inspection costs per hour = 5000*0.5*70 = 175000

Rework (internal) = units sold * percentage of units reworked * average variable rework cost per refrigerator = 5000*4%*350 = 70000

Rework (external) = units sold * percentage of units repair under warranty * average variable rework cost at customers’ homes per refrigerator = 5000*9%*520 = 234000

Lost profits due to poor reputation = estimated lost sales due to quality inspection * (selling price – variable manufacturing and selling costs) = 600*(1400-800) = 360000

% of costs = total cost of respective category / total cost