Trend, Long-Range Performance Report
In 20x4, Tru-Delite Frozen Desserts, Inc., instituted a quality improvement program. At the end of 20x5, the management of the corporation requested a report to show the amount saved by the measures taken during the year. The actual sales and quality costs for 20x4 and 20x5 are as follows:
20x4 |
20x5 |
|
Sales |
$600,000 |
$600,000 |
Scrap |
15,000 |
15,000 |
Rework |
20,000 |
10,000 |
Training program |
5,000 |
6,000 |
Consumer complaints |
10,000 |
5,000 |
Lost sales, incorrect labeling |
8,000 |
0 |
Test labor |
12,000 |
8,000 |
Inspection labor |
25,000 |
24,000 |
Supplier evaluation |
15,000 |
13,000 |
Tru-Delite’s management believes that quality costs can be reduced to 2.5 percent of sales within the next five years. At the end of 20x9, Tru-Delite’s sales are projected to grow to $750,000. The projected relative distribution of quality costs at the end of 20x9 is as follows:
Scrap |
15 |
% |
Training program |
20 |
|
Supplier evaluation |
25 |
|
Test labor |
25 |
|
Inspection labor |
15 |
|
Total quality costs |
100 |
% |
Required:
1. Profits increased by what amount due to
quality improvements made in 20x5?
$29,000
Feedback
1. Consider preparing an interim quality performance report to compare the quality costs for the two years.
2. Prepare a long-range performance report that compares the quality costs incurred at the end of 20x5 with the quality cost structure expected at the end of 20x9. If an amount is zero, enter "0". Round percentages to one decimal place, when rounding is required. For example, 5.8% would be entered as "5.8". Select "NA" if there is no budget variance. Round your answers to the nearest dollar, with two exceptions: round test labor and scrap long-range target costs down to the nearest dollar (for example, $905.90 rounds down to $905).
Tru-Delite Frozen Desserts, Inc. |
||||
Long-Range Performance Report |
||||
For the Year Ended December 31, 20x5 |
||||
Actual Costs, 20x5 |
Long-Range Target Costs |
Budget Variance |
Favourable (F), Unfavorable (U) or NA |
|
Prevention costs: |
||||
Training program |
$6,000 |
$3,750 |
$2,250 |
Unfavorable |
Supplier evaluation |
13,000 |
4,688 |
8,312 |
Unfavorable |
Total prevention costs |
$19,000 |
$8,438 |
$10,562 |
Unfavorable |
Appraisal costs: |
||||
Test labor |
$ |
$4,687 |
$ |
Unfavorable |
Inspection labor |
2,813 |
Unfavorable |
||
Total appraisal costs |
$ |
$7,500 |
$ |
Unfavorable |
Internal failure costs: |
||||
Scrap |
$ |
$2,812 |
$ |
Unfavorable |
Rework |
0 |
Unfavorable |
||
Total internal failure costs |
$ |
$2,812 |
$ |
Unfavorable |
External failure costs: |
||||
Consumer complaints |
$ |
0 |
$ |
Unfavorable |
Lost sales, incorrect labeling |
0 |
0 |
0 |
NA |
Total external failure costs |
$ |
0 |
$ |
Unfavorable |
Total quality costs |
$ |
$18750 |
$ |
Unfavorable |
Percentage of sales |
% |
2.5% |
% |
Unfavorable |
Feedback
Review the long-range performance report comparing actual costs to target costs that you have learned in the chapter. To classify quality costs by category, ask yourself the following questions for each item listed: Does the cost relate to activities that are performed because poor quality exists? If so, was a customer impacted by that quality failure? If the cost did not result from a quality failure, did the cost relate to activities that were performed to detect any quality problems or to prevent them in the first place?
3. What would be the profit increase in 20x9 if
the 2.5 percent performance standard is met in that year?
The profit by $
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