Question

Voltswagon plc produces and sells cars. In the past, the company has been very successful, however, increased competition and complaints about car reliability have started to reduce company profits. A new Finance Director has recently hired a consultant to review the existing production processes. The consultant has identified the following areas for consideration: (1) Quality costs Balanced Scorecard REQUIRED: Please note: a maximum word count applies to parts (b), (c) and (d) of this question ONLY. There is no maximum word counts for part (a). (a) The following costs related to maintaining product quality were incurred during the financial year ended 31 December 2019: 3. 4. Description £'000 % of sales (£50m) 1. Costs of downtime, where staff were unable to 1,000 2% work, due to the quality of supplies received into the business 2. Costs of re-work on faulty components before sale 400 0.8% Inspection of raw materials from external suppliers 200 0.4% Inspection of finished goods produced by 300 0.6% Voltswagon plc 5. Handling of returns received from customers due 1,500 3% to poor quality products received 6. Repairs of items returned under warranty (a period 1,100 2.2% during which faulty products will be repaired for free) 7. Training of quality control inspectors who inspect 300 0.6% the quality of items on the production line Regular maintenance costs for machines that 200 0.4% produce component parts to ensure that faulty items are not produced 9. Product recalls, where a fault has been identified in 900 1.8% a certain number of products and the customer needs to return their product in return for a replacement 10. Handling customer complaints 1,800 3.6% 11. Supplier evaluation and selection reviews 100 0.2% 12. Inspection of work in progress 200 0.4% Total 8,000 16% (0) Briefly explain each of the following cost categories: prevention costs, appraisal costs, internal failure costs, external failure costs. 8.

Answer 1

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Amount 1 1000 400 3 200 300 1500 1100 SR Classification of Particulars .No Costs Costs of down time, where staff were unable to work ,due Internal Failure to the quality of supplies received into the business Costs Internal Failure 12 Costs of rework on faulty components before sale Costs Inspection of Raw material from external suppliers Appraisal Cost 14 Inspection of finished goods produced by volts wagon plc Appraisal Cost Handling of returns received from Customers due to poor 15 quality products received External Failure cost 16 Repairs of items returned under warranty ( a period during which faulty products will be repaired for free) External Failure cost Training of quality control inspectors who inspect the quality of items on production line Prevention Costs Regular maintenance costs for machines that produce component parts to ensure that faulty items are not Appraisal Cost produced Product recalls ,where a fault has been identified in a certain number of products & the customer needs to External Failure cost return their product in return their product in return for a replacement 10 Handling customer complaints External Failure cost 11 Supplier evaluation & Selection reviews Prevention Costs 12 Inspection of Work in Process Appraisal Cost 7 300 8 200 900 1800 100 200 8000