Question

Question No-1

1. Prepare a written evaluation report with graph (use percentage column in the graph) for the Ventura Company on the basis of following quality costs report. This evaluation should discuss the distribution of quality costs in the company, changes in the distribution over the last year, and any other information you believe would be useful to management.

Ventura Company; Quality Cost Report For Years 2017 and 2018
	2017		2018
	Amount	Percentage	Amount	Percentage
Prevention cost	650,000	1.30%	1,000,000	2.00%
Appraisal cost	1,200,000	2.40%	1,500,000	3.00%
Internal failure cost	2,000,000	4.00%	3,000,000	6.00%
External failure cost	5,150,000	10.30%	2,000,000	4.00%
Total Quality Costs	9,000,000	18.00%	7,500,000	15.00%
Sales	50,000,000		50,000,000

B. Yedder Enterprises was a pioneer in designing and producing precision surgical lasers. Yedder’s product was brilliantly designed, but the manufacturing process was neglected by management with a consequence that quality problems have been chronic. When customers complained about defective units, Yedder would simply send out a repairperson or replace the defective unit with a new one. Recently, several competitors came out with similar products without Yedder’s quality problems, and as a consequence Yedder’s sales have declined. To rescue the situation, Yedder embarked on an intensive campaign to strengthen its quality control at the beginning of the current year. These efforts met with some success—the downward slide in sales was reversed, and sales grew from $95 million last year to $100 million this year. To help monitor the company’s progress, costs relating to quality and quality control were compiled for last year and for the first full year of the quality campaign this year. The costs, which do not include the lost sales due to a reputation for poor quality, appear below:

Costs (in thousands)	Last Year	This Year
Product recalls	$ 3500	$600
Systems development	120	680
Inspection	1700	2770
Net cost of scrap	800	1300
Supplies used in testing	30	40
Warranty repairs	3300	2800
Rework labor	1400	1600
Statistical process control	0	270
Customer returns of defective goods	3200	200
Cost of testing equipment	270	390
Quality engineering	1080	1650
Downtime due to quality problems	600	1100

Prepare a quality cost report for both this year and last year. Carry percentage computations to two decimal places.

Answer 1

B : Preparation of a quality cost report for both this year and last year:

Yedder Enterprises Quality Cost Report (in thousands of dollars) Last Year Amount This Year Amount Percent Percent $ 120 0.13 0.00 1.14 1.27 % $ 680 % 270 % 1,650 % 2.600 0.68 0.27 1.65 2.60 % % % % 1,080 1,200 1,700 30 270 2,000 1.79 0.03 0.28 2.10 % 2,770 % 40 % 390 % 3,200 2.77 0.04 0.39 3.20 % % % % Prevention costs: Systems development.... Statistical process control Quality engineering.... Total prevention cost.. Appraisal costs: Inspection.... Supplies used in testing. Cost of testing equipment Total appraisal cost... Internal failure costs: Net cost of scrap... Rework labor... Downtime due to quality problems.. Total internal failure cost.. External failure costs: Product recalls... Warranty repairs. Customer returns of defective goods... Total external failure cost.... Total quality cost... 800 1,400 600 2,800 0.84 1.47 0.63 2.94 % 1,300 % 1,600 % 1,100 % 4,000 1.30 1.60 1.10 4.00 % % % % 3,500 3,300 3,200 10,000 $16,000 3.68 3.47 3.37 10.52 16.84 % 600 % 2,800 % 200 % 3,600 % $13,400 0.60 2.80 0.20 3.60 13.40 % % % % % * As a percentage of total sales in each year. Note: Figures in the percent columns are subject to rounding error.