Question

Gamma Industries manufactures freezers. Here is some information about its "LX17" line of freezers over the past year: E: (Click the icon to view the information Х Read the requirements Data Table þory of the total COQ. (Round the percentage to the one tenth of a percent, X.X%. If a box is not used in Requirement 1. Prepare a Cost of Qual the table leave the box empty, do not se Number of units manufactured and sold 4,000 units Gamma Cost of Quality Repo $ 1,500 Х Requirements $ 700 Prevention Costs: 800 1.5 hours 5% Selling price per unit Variable manufacturing and selling costs per unit Hours spent by engineers improving design. Testing and inspection hours per unit.... Percentage of units reworked in the plant after inspection Average variable rework costs per refrigerator Percentage of units repaired under warranty at customers' homes Average variable repair costs at customers' homes per refrigerator. Estimated lost sales due to quality reputation Design engineer's labor rate (includes benefits and payroll taxes). Inspection costs per hour. 1. Prepare a Cost of Quality (COQ) report. In addition to calculating the total costs of each category, calculate the percentage of COQ category of the total COQ 2. Why would the variable repair cost at the customers' home generally be higher than the "in factory" rework cost? 3. How can use of the COQ report lead to improvements in the production process or in the quality of the product itself? Total prevention costs $ 400 9% Appraisal Costs: $ 520 500 units Print Done $110 per hour $30 per hour Total appraisal costs Internal Failure Costs: Print Done Done

Answer 1

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Gamma Cost of Quality Report	Costs Incurred	Total Costs of Quality	Percentage of Total Costs of Quality (Rounded)
Prevention Costs:
Design Engineering	88,000
(800 hours * $110)
Total Prevention Costs		88,000	9.4%
Appraisal Costs:
Testing & Inspection	180,000
(4,000 units * 1.5 hour * $30)
Total Appraisal Costs		180,000	19.2%
Internal Failure Costs:
Rework (Internal)	80,000
(4,000 units * 5% * $400)
Total Internal Failure Costs		80,000	8.6%
External Failure Costs:
Rework (External)	187,200
(4,000 units * 9% * $520)
Lost Profit due to Poor Reputation	400,000
(500 units * $(1,500 - 700)
Total External Failure Costs		587,200	62.8%
Total Costs of Quality		935,200	100.0%