Warranty returns $144,000
Training personnel 120,000
Litigation on product liability claims 210,000
Inspecting 10% of final products 6,000
Rework 12,000
Production loss due to machine breakdowns 54,000
Inspection of raw materials 6,000
Required:
A. Complete the Cost of Quality Report.
B. Do any additional subjective costs appear to be missing from the report?
C. What can be learned from the report?
Costs
Incurred
Total Costs
of Quality
Percentage of
Total Costs
of Quality
Prevention Costs:
Total prevention costs
Appraisal Costs:
Total appraisal costs
Internal Failure Costs:
Total internal failure costs
External Failure Costs:
Total external failure costs
Total costs of quality
30
Answer: Requirement A:
Costs
Incurred
Total Costs
of Quality
Percentage of
Total Costs
of Quality
Prevention Costs:
Personnel training $12,000
Total prevention costs $12,000 3%
Appraisal Costs:
Inspecting raw materials $6,000
Inspecting 10% of final
products
$6,000
Total appraisal costs $12,000 3%
Internal Failure Costs:
Rework $12,000
Production loss due to
machine breakdown
$54,000
Total internal failure costs $66,000 15%
External Failure Costs:
Litigation costs from product
liability claims
$210,000
Warranty return costs $144,000
Total external failure costs $354,000 79%
Total costs of quality $444,000 100%
Requirement B:
Because the company has warranty returns and litigation costs it is possible that it has a reputation for poor
quality. This may be resulting in lost sales and hence lost profits.
Requirement C:
The Cost of Quality report shows that little is being spent on prevention and maintenance.
256) The CEO of Yuppie Prepared Meals is concerned about the amount of resources currently spent on customer
warranty claims. Each box of snacks is printed with the guarantee: "Satisfaction guaranteed or your money
back." Since the claims are so high, she would like to evaluate what costs are being incurred to ensure the
quality of the product. The following information was collected from various departments within the company:
Warranty claims $210,000
Cost of defective products found at the inspection point 47,000
Training factory personnel 13,000
Recall of Batch #59374 87,500
Inspecting products when halfway through the production process 27,500
Cost of disposing of rejected products 6,000
Preventive maintenance on factory equipment 3,500
Production loss due to machine breakdowns 7,500
Inspection of raw materials 2,500
As the new cost accountant, the CEO has requested that you complete the following Cost of Quality Report:
Costs
Incurred
Total Costs
of Quality
Percentage of
Total Costs
of Quality
Prevention Costs:
31
Prevention Costs:
Total prevention costs
Appraisal Costs:
Total appraisal costs
Internal Failure Costs:
Total Internal Failure
costs
External Failure Costs:
Total external failure costs
Total costs of quality
Answer:
Costs
Incurred
Total Costs
of Quality
Percentage of
Total Costs
of Quality
Prevention Costs:
Personnel training $13,000
Preventative maintenance on factory
equipment
$3,500
Total prevention costs $16,500 4%
Appraisal Costs:
Mid- point inspection $27,500
Inspection of raw materials $2,500
Total appraisal costs $30,000 7%
Internal Failure Costs:
Cost of defective products found at the
inspection point
$47,000
Cost of disposing of defective product $6,000
Production loss due to machine
breakdowns
$7,500
Total Internal Failure Costs $60,500 15%
External Failure Costs:
Warranty claims $210,000
Cost of recall $87,500
Total external failure costs $297,500 74%
Total costs of quality $404,500 100%
32
257) The CEO of Yuppie Prepared Meals is concerned about the amount of resources currently spent on customer
warranty claims. Each box of snacks is printed with the guarantee: "Satisfaction guaranteed or your money
back." Since the claims are so high, she would like to evaluate what costs are being incurred to ensure the
quality of the product. The following information was collected from various departments within the company:
Warranty claims $315,000
Cost of defective products found at the inspection point 70,000
Training factory personnel. 20,000
Recall of Batch #59374 130,000
Inspecting products when halfway through the production process 45,000
Cost of disposing of rejected products 9,000
Preventive maintenance on factory equipment 5,000