Question

Interim Quality Performance Report

Davis, Inc., had the following quality costs for the years ended December 31, 20x4 and 20x5:

	20x4	20x5
Prevention costs:
Quality audits	$60,000	$90,000
Vendor certification	119,500	179,250
Appraisal costs:
Product acceptance	$90,000	$135,000
Process acceptance	91,000	102,500
Internal failure costs:
Retesting	$96,000	$86,000
Rework	200,000	176,000
External failure costs:
Recalls	$142,500	$114,000
Warranty	330,000	314,000

At the end of 20x4, management decided to increase its investment in control costs by 50 percent for each category’s items with the expectation that failure costs would decrease by 20 percent for each item of the failure categories. Sales were $11,500,000 for both 20x4 and 20x5.

Required:

1. Calculate the budgeted costs for 20x5.

$

Prepare an interim quality performance report. Enter all answers as positive amounts. If there is no variance enter "0" for your answer. If the budget variance amount is unfavorable select "Unfavorable" in the last column of the table, select "Favorable" if it is favorable, or No effect if there is no change. Round percentage answers to two decimal places. For example, 5.789% would be entered as "5.79".

Davis, Inc.
Interim Standard Performance Report: Quality Costs
For the Year Ended December 31, 20x5
	Actual Costs	Budgeted Costs	Variance	Unfavorable, Favorable or No effect
Prevention costs:
(Process acceptance, product accept, quality audits, recalls, retesting, rework, or warranty)	$	$		Favorable, Unfavorable, or No effect
(Process acceptance, product accept, quality audits, recalls, retesting, rework, or warranty)				"                  "
Total prevention costs	$	$		"                    "
Appraisal costs:				"                     "
(Process acceptance, product accept, quality audits, recalls, retesting, rework, or warranty)	$	$		Favorable, Unfavorable, or No effect
"                      "			$	"                    "
Total appraisal costs	$	$	$	"                    "
Internal failure costs:				"                    "
(Process acceptance, product accept, quality audits, recalls, retesting, rework, or warranty)	$	$	$	"                   "
"                       "				"                      "
Total internal failure costs	$	$	$	Favorable, Unfavorable, or No effect
External failure costs:				"                      "
(Process acceptance, product accept, quality audits, recalls, retesting, rework, or warranty)	$	$		Favorable, Unfavorable, or N/A
"                     "				Favorable, Unfavorable, or No effect
Total external failure costs	$	$	$	"                      "
Total quality costs	$	$	$	"                    "
Percentage of sales	%	%	%	"                      "

2. What can be inferred from the report regarding the progress Davis has made?

     (Davis has not come close to meeting the planned outcomes, He Has come very close to meeting the planned, or He has exceeded the planned outcomes)

3. What if sales were $11,500,000 for 20x4 and $14,375,000 for 20x5? What adjustment to budgeted rework costs would be made? (Note: Quality auditing is a discretionary cost and its budget is not affected by the change in sales revenue in 20x5.)

New total budgeted rework costs: $

Answer 1

Davis, Inc.
Interim Standard Performance Report: Quality Costs
For the Year Ended December 31, 20x5
	Actual Costs	Budgeted Costs	Variance	Unfavorable, Favorable or No effect
Prevention costs:
Quality audits	90000	90000	0	NE
Vendor certification	179250	179250	0	NE
Total prevention costs	269250	269250	0	NE
Appraisal costs:
Product acceptance	135000	135000	0	NE
Process acceptance	102500	136500	34000	F
Total appraisal costs	237500	271500	34000	F
Internal failure costs:
Retesting	86000	76800	9200	UF
Rework	176000	160000	16000	UF
Total internal failure costs	262000	236800	25200	UF
External failure costs:
Recalls	114000	114000	0	NE
Warranty	314000	264000	50000	UF
Total external failure costs	428000	378000	50000	UF
Total quality costs	1196750	1155550	109200	UF
Percentage of sales = Total quality Cost/ Sales	10.41%	10.05%	0.95%	UF
2)
Davis has come very close to meeting the planned outcomes (only 0.95 percent short overall). Thus, management’s belief that investing an additional 50 percent in control costs would produce a 20 percent reduction in failure costs seems to be validated.
3)
% in increase in Sales = $14,375,000 - $11,500,000)/$11,500,000	25%
Rework would be expected to vary with sales. Thus, a 25 percent increase in sales, would cause a 25 percent increase in budgeted rework costs: $200,000 × 1.25 = $250,000.
New total budgeted rework costs =	$ 2,50,000.00

4 Prevention costs: 5 Quality audits 6 Vendor certification 7 Appraisal costs 8 Product acceptance 9 Process acceptance 10 Internal failure costs 11 Retesting 12 Rework 13 External failure costs: 14 Recalls 15 Warranty 16 At the end of 20x4, management decided to increase its investment in control costs by 50 percent for each category's items with the expectation that 17 Required 18 1. Calculate the budgeted costs for 20x5 19 Prepare an interim quality performance report. Enter all answers as positive amounts. If there is no variance enter "O" for your answer. If the budget 20 Davis, Inc. 21 Interim Standard Performance Report: Quality Costs 22 For the Year Ended December 31, 20x5 176000 114000 314000 Unfavorable, Favorable or No effect Actual Costs Budgeted Costs 24 Prevention costs: 25 Quality audits 26 Vendor certification 27 Total prevention costs 28 Appraisal costs: 29 Product acceptance 30 Process acceptance 31 Total appraisal costs 32 Internal failure costs: 33 Retesting 34 Rework 35 Total internal failure costs 36 External failure costs: 37 Recalls 38 Warranty 39 Total external failure costs 40 Total quality costs 41 Percentage of sales Total quality Cost/ Sales B5 1.5 -B6 1.5 826-C26 -827-C27 B8 1.5 B9 1.5 -C30-B30 C31-B31 B29+B30 C11 833 B34 -B11 0.8 -B12 0.8 -833-C33 -834-C34 «В 14.08 -B15 0.8 -C37 C38 C27+C31+C35 C39 -CA0/11500000 -837-C37 -838-C38 -839-C39 D27 D31+D35+039 D40/11500000 B37+B38 827 831+835+839 B40/11500000