Question

Thank you!

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. Year Costs in thousands) Last This Year 630 $ 918 $ 540 $ 720 495 1.080 $ 1.530 0 270 1 260 1.170 Inspection Quality engineering Depreciation of test equipment Rework labor Statistical process control Cost of field servicing Supplies used in testing Systems development Warranty repairs Netcost of scrap Product testing Product recalls Disposal of defective products 180 720 4 680 720 990 2610 900 $ $ $ 900 1.440 1.440 1.710 990 $ 1.080 Sales have been flat over the past few years, at $90,000,000 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 thousands Round your percentage answers to 2 decimal places (i.e 0.1234 should be entered as 12.34)

Answer 1

	Last Year		This Year
	Amount	% Of sales	% Of sales
Prevention Costs:
System Development	720	0.80%	900	1.00%
Statistical Process Control	0	0.00%	270	0.30%
Quality Engineering	540	0.60%	720	0.80%
Total Prevention Costs	1260	1.40%	1890	2.10%
Appraisal Costs:
Inspection	630	0.70%	918	1.02%
Supplies used in testing	45	0.05%	72	0.08%
Depreciation	495	0.55%	180	0.20%
Total Appraisal Costs	1170	1.30%	1170	1.30%
Internal Failure Costs
Net cost of scrap	720	0.80%	1440	1.60%
Rework labor	1080	1.20%	1530	1.70%
Disposal of defective pdt	900	1.00%	1080	1.20%
Total Internal Failure Costs	2700	3.00%	4050	4.50%
External Failure Costs
Product recalls	2610	2.90%	990	1.10%
waranty repaid	4680	5.20%	1440	1.60%
cost of field serving	1260	1.40%	1170	1.30%
product testing	990	1.10%	1710	1.90%
Total External Failure Costs	9540	10.60%	5310	5.90%
Total Quality Costs	14670	16.30%	12420	13.80%