Question

Exercise 14.11 Activity-Based Quality Costing Abernathy, Inc., produces two different generators and is concerned about their quality The company has identified the following quality activities and costs associated with the two products: Generator A Generator B 170,000 1,700 3,400 3,400 85 340.000 850 850 1,700 85 Units produced Warranty work (units) Scrapped units (number) Inspection (hours) Quality training (hours) Activities: Performing warranty work Scrapping units Inspecting Quality training $816,000 612,000 306,000 85,000 Required: 1. Calculate the quality cost per unit for each product, and break this unit cost into quality cost categories. Which of the two seems to have the lowest quality? 2. How might a manager use the unit quality cost information?

Answer 1

Solution -

1 Activity Cost driver OH driver lavel Cost per driver Performing Warranty Work Scrapping Units Inspecting Quality Training Total Quality Costs Units produced Quality cost per unit Waranty work units No. of scrapped units Inspection hrs Training hrs $ $ $ $ $ 8,16,000 6,12,000 3,06,000 85,000 18,19,000 2550 S 4250 $ 5100 $ 170 $ 320.00 144.00 60.00 500.00 Activity used Cost Generator Generator B Generator B Generator B 1700 850 $ 5,44,000 $ 2,72,000 3400 850 $ 4,89,600 $ 1,22,400 34001 1700 $ 2,04,000 $ 1,02,000 85 85 S 42,500S 42,500 $ 12,80,100 $ 5,38,900 170000 340000 $ 7.53 $ 1.59 As Generator A has high quality cost per unit it is having low quality. 2 So manager by using this unit quality cost information, must rely on Generator B as it is having lower quality cost and which will help in convienent quality check and also help help in better production of the units.