Question

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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 amoun 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: Florex Company Quality Cost Report Last Year Amount (in Percent of thousands) Sales This Year Amount (in Percent of thousands) Sales $ $ 1.00% 0.50 840 0 420 1,260 1.00 0.00 0.40 1.40 Costs (in thousands) Last This Year Year $ 630 $ 756 $ 420 $ 630 588 $ 210 1,050 $ 1,680 0 $ 420 $ 1,260 $ 1,176 $ 42 $ 42 $ 840 $ 840 $ 3,780 $ 1,512 $ 420 $ 1,050 $ 840 $ 1,848 $ 2,940 $ 840 $ 630 $ 420 840 420 630 1,890 1.50 Inspection Quality engineering Depreciation of test equipment Rework labor Statistical process control Cost of field servicing Supplies used in testing Systems development Warranty repairs Net cost of scrap Product testing Product recalls Disposal of defective products تهيه ميه ميه ميه ميه ميه ميه ميه ميه ميه ميه ميه ميه 756 0.84 0.08 - 42 630 42 588 840 2,100 0.06 0.30 2101 1,848 2,856 0.92 0.36 Prevention costs: Systems development Statistical process control Quality engineering Total prevention costs Appraisal costs Inspection Supplies used in testing Depreciation of test equipment Product testing Total appraisal costs Internal failure costs: Net cost of scrap Rework labor Disposal of defective products Total internal failure costs External failure costs: Product recalls Warranty repairs Cost of field servicing Total external failure costs Total quality cost Sales have been flat over the past few years, at $84,000,000 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. 420 1,050 630 1,050 1,680 420 3,150 Required: 1. Prepare a quality cost report that contains data for both this year and last year. (Enter amount values in thousands. Round your percentage answers to 2 decimal places (i.e 0.1234 should be entered as 12.34).) 2,100 0.00 1.00 4.40 2,940 3,780 1,260 7,980 13,440 840 1,5127 1,176 3,528 11,424 4.40 1.00 $ $

Answer 1

			All Amounts in thousands
		Sales	$84,000
			Last Year						This year
				Percent of sales		Calculation				Percent of sales		Calculation
		Prevention Cost	$840	1	%	(840/84000)*100			$840	1	%	(840/84000)*100
		System development	$0	0	%	(0/84000)*100			$420	0.5	%	(420/84000)*100
		Statistical process control	$420	0.5	%	(420/84000)*100			$630	0.75	%	(630/84000)*100
		Quality engineering	$1,260	1.5	%	(1260/84000)*100			$1,890	2.25	%	(1890/84000)*100
		Total Prevention cost
		Appraisal Costs
		Inspection	$630	0.75	%	(630/84000)*100			$756	0.9	%	(756/84000)*100
		Suppliers used in testing	$42	0.05	%	(42/84000)*100			$42	0.05	%	(42/84000)*100
		Depreciation of test equipment	$588	0.7	%	(588/84000)*100			$210	0.25	%	(210/84000)*100
		Product testing	$840	1	%	(840/84000)*100			$1,848	2.2	%	(1848/84000)*100
		Total appraisal costs	$2,100	2.5	%	(2100/84000)*100			$2,856	3.4	%	(2856/84000)*100
		Internal failure costs
		Net cost of scrap	$420	0.5	%	(420/84000)*100			$1,050	1.25	%	(1050/84000)*100
		Rework cost	$1,050	1.25	%	(1050/84000)*100			$1,680	2	%	(1680/84000)*100
		Disposal of defective products	$630	0.75	%	(630/84000)*100			$420	0.5	%	(420/84000)*100
		Total Internal failure costs	$2,100	2.5	%	(2100/84000)*100			$3,150	3.75	%	(3150/84000)*100
		External failure costs
		Product recalls	$2,940	3.5	%	(2940/84000)*100			$840	1	%	(840/84000)*100
		Warranty repairs	$3,780	4.5	%	(3780/84000)*100			$1,512	1.8	%	(1512/84000)*100
		Cost of fields servicing	$1,260	1.5	%	(1260/84000)*100			$1,176	1.4	%	(1176/84000)*100
		Total external failure costs	$7,980	9.5	%	(7980/84000)*100			$3,528	4.2	%	(3528/84000)*100
		Total quality cost	$13,440	16	%	(13440/84000)*100			$11,424	13.6	%	(11424/84000)*100