Question

You are given the following environmental quality-related costs:

Employee training	$	110,000
Product design		150,000
Supplier certification		45,000
Process inspection		325,000
Depreciation—pollution-control equipment		410,000
Maintain pollution-control equipment		210,000
Clean up polluted lake		510,000
Restore land after use		710,000
Property damage claim		610,000

Required:

1. Prepare a cost-of-quality (COQ) report of environmental management for the year. Determine subtotals for each of the four reporting categories, and express each subtotal as a percentage of total operating expenses ($10,000,000) for the year. (Hint: Classify the pollution-control costs as internal failure costs, under the assumption that the process pollutes and that the pollution-control equipment used by the company controls the release of pollutants into the environment.) (Round your percentage answers to 1 decimal place.)

Answer 1

Answer:

Cost of Quality Report % of Total Operating Expenses (Total cost/ $10,000,000) Category Cost Preventive: Employee training $ 110,000 Product design $ 150,000 260,000 Total Prevention Costs 2.6% Appraisal Costs Supplier certification Process inspection $ 325,000 370,000 45,000 $ Total Appraisal Costs $ 3.7% Internal Failure Costs: Depreciation-pollution-control equipment Maintain pollution-control equipment Clean up polluted lake $ 410,000 $ 210,000 510,000 $1,130,000 11.3% Total Internal Failure Costs External Failure Costs Restore land after use $ 710,000 Property damage claim 610,000 $1,320,000 13.2% Total External Failure Costs Total Cost of Quality $ 3,080,000 30.8%