Question

Check my work In response to intensive foreign competition, the management of Florex Company has attempted over the past year to improve the quality of its products. A statistical process control system has been installed and other steps have been taken to decrease the amount of warranty and other field costs, which have been trending upward over the past several years. Costs relating to quality and quality control over the last two years are given below: Costs (in thousands) Last This Rook Year Year Inspection Quality engineering Depreciation of test equipnent 840 2$ 360 %24 870 600 int 2$ ences 510 300 Rework labor $ 1,230 $ 1,890 %24 Statistical process control Cost of field servicing Supplies used in testing Systens development Warranty repairs Net cost of scrap Product testing Product recalls Disposal of defective products 300 $ 1,650 %24 2$ $ 3,000 %24 60 900 24 660 30 750 %24 $ 1,200 $ 1,230 $ 1,350 660 990 24 $ 2,400 2$ 750 810 24 930 Sales have been flat over the past few years, at $75,000,000 per year. A great deal of money has been spent in the effort to upgrade quality, and management is anxious to see whether or not the effort has been effective. Required: 1. Prepare a quality cost report that contains data for both this year and last year. (Enter amount values in thousanle Dound unur nerrentane anewere to 2 decimal nlacee lie 01234 shoualed he entered as 12 34)1

Answer 1

	Last Year	% of sales	This year	% of sales
Prevention cost
Quality Engineering	360	0.0048	600	0.008
Statistical Process Control	0	0	300	0.004
System Development	660	0.0088	750	0.01
Total Prevention Cost	1020	0.0136	1650	0.022
Appraisal Cost
Inspection	840	0.0112	870	0.0116
Depreciation of Test Equipment	510	0.0068	300	0.004
Supplies used in Testing	60	0.0008	30	0.0004
Product Testing	990	0.0132	1350	0.018
Total Appraisal Cost	2400	0.032	2550	0.034
Internal failure costs
Rework labor	1230	0.0164	1890	0.0252
Net cost of scrap	660	0.0088	1230	0.0164
Disposal of defective products	810	0.0108	930	0.0124
Total internal failure costs	2700	0.036	4050	0.054
External failure costs
Cost of field servicing	1650	0.022	900	0.012
Warranty repairs	3000	0.04	1200	0.016
Product recalls	2400	0.032	750	0.01
Total external failure costs	7050	0.094	2850	0.038
Total quality cost	13170		11100