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13.03 In 20X1, Don Blackburn, president of Price Electronics, received a report indicating that quality costs...

13.03

In 20X1, Don Blackburn, president of Price Electronics, received a report indicating that quality costs were 31% of sales. Faced with increasing pressures from imported goods, Don resolved to take measures to improve the overall quality of the company’s products. After hiring a consultant in 20X1, the company began an aggressive program of total quality control. At the end of 20X5, Don requested an analysis of the progress the company had made in reducing and controlling quality costs. The accounting department assembled the following data:

Sales Prevention Appraisal Internal Failure External Failure
20X1 $1,000,000 $10,000 $20,000 $160,000 $120,000
20X2 1,200,000 50,000 30,000 120,000 100,000
20X3 1,400,000 70,000 60,000 70,000 50,000
20X4 1,200,000 80,000 30,000 50,000 40,000
20X5 1,000,000 100,000 10,000 24,000 16,000

Required:

1. Compute the quality costs as a percentage of sales by category and in total for each year. Round your answers to two decimal places.

Prevention Appraisal Internal Failure External Failure Total
20X1 % % % % %
20X2
20X3
20X4
20X5

2. Prepare a multiple-year trend graph for quality costs, both by total costs and by category in your own paper. Using the graph, assess the progress made in reducing and controlling quality costs. Does the graph provide evidence that quality has improved? Explain.

Quality costs overall have (Pick One: Decreased or Increased) . Real evidence of this change stems from the fact that (Pick One: External Failure and Appraisal, Internal Failure and Appraisal, or Internal and External Failure) costs have (Pick One: Decreased or Increased) the most.

3. Using the 20X1 quality cost relationships (assume all costs are variable), calculate the quality costs that would have prevailed in 20X4.

Prevention Appraisal Internal Failure External Failure Total
20X4 $ $ $ $ $
20X5

By how much did profits increase in 20X4 because of the quality improvement program? Repeat for 20X5.

20X4 $
20X5 $

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Answer #1

Year 20X1 20X2 Sales Prevention Amount Cost % 10,00,000 10,000 1.00% 12,00,000 50,000 5.00% 14,00,000 70,000 7.00% 12,00,000Question 2. Multiple-year trend graph 7,00,000 6,00,000 5,00,000 4,00,000 3,00,000 2,00,000 1,00,000 0 20X1 20x2 20x3 20X4 20Progress made in reducing and controlling quality cost is commentable. In 20X1 the total quality cost was 31%, where as at the end of year 20X5 it has come down to just 15% of total sales.

If we look into the graph we can understand that Prevention and Appraisal cost has increased whereas Internal, external failure costs have decreased, this is an indication of quality improvement. Prevention cost is the cost incurred to avoid or minimize the production of defective products (Examples:- Training to employees, quality engineering). Appraisal costs are cost on certain procedures employed to avoid defective products (Example:- Inspection of raw materials). Both Prevention and Appraisal costs are incurred before the final product is manufactured. Internal and external failure costs are the cost incurred to correct the costs before sales or after sales respectively. Thus Internal and external sales are incurred after final product is manufactured. Now if you look into the chart, you will find that both Prevention and Appraisal cost has increased whereas Internal and External failure cost has reduced. This means that cost of quality before product manufacture has increased and cost of quality after product manufacture has decreased, which further means that the quality of product has increased, thereby reducing Internal and external failure cost.

Quality costs overall have Decreased. Real evidence of this change stems from the fact that Internal and External Failure costs have Decreased the most.

Question 3:-

Since all costs are variable, the percentage of each category of quality cost to total sales of 20X4 and 20X5 will be same as 20X1. Below is the table after calculation:

Year Question 3. Quality cost that would have prevailed Sales Prevention Appraisal Internal Failure External Failure | TotalBy how much did profits increase in 20X4 because of the quality improvement program?

20X4 = Total cost without quality improvement program - Total cost with quality improvement program

= $372,000 - $200,000

= $172,000

20X5 = Total cost without quality improvement program - Total cost with quality improvement program

= $310,000 - $150,000

= $160,000

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Answer #2

Not sure how the answer above got those values, but #1 should be

1000000100001.00
1200000800006.67
1400000700005.00
1200000800006.67
100000010000010.00
1000000200002.00
1200000300002.50
1400000600004.29
1200000300002.50
1000000100001.00
100000016000016.00
1200000500004.17
1400000700005.00
1200000500004.17
1000000240002.40
100000012000012.00
1200000400003.33
1400000500003.57
1200000400003.33
1000000160001.60


31.00


16.67


17.86


16.67


15.00


source: Did the homework
answered by: Paul
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