Cost-of-Quality (COQ) Reporting; Spreadsheet Application Carrie Lee, the president of LeeEnterprises, was concerned about the results of her company’s new quality control efforts. “Maybethe emphasis we’ve placed on upgrading our quality control system will pay off in the long run, butit doesn’t seem to be helping us much right now. I thought improved quality would give a real boostto sales, but sales have remained flat at about $10,000,000 for the last 2 years.”Lee Enterprises has seen its market share decline in recent years because of increased foreigncompetition. An intensive effort to strengthen the quality control system was initiated a year ago (onJanuary 1, 2020) in the hope that better quality would strengthen the company’s competitive position and reduce warranty and servicing costs. The following costs (in thousands) relate to qualityand quality control over the last 2 years:[LO 17-5, 17-7]2019 2020Warranty repairs $420 $140Rework labor 140 200Supplies used in testing 4 6Depreciation of testing equipment 22 34Warranty replacements 60 18Field servicing 180 120Inspection 76 120Systems development 64 106Disposal of defective products 54 76Net cost of scrap 86 124Product recalls 340 82Product testing 98 160Statistical process control (SPC) — 74Quality engineering 56 80Required1. Prepare a spreadsheet that produces a cost-of-quality (COQ) report for both 2019 and 2020. For eachindividual cost, for each of the four category totals, and for total COQ spending calculate (to 2 decimalplaces, e.g., 42.884% = 42.88%) the percentage change from 2019 to 2020.2. Use your spreadsheet to prepare a histogram showing total COQ spending and spending by COQ category. (Note: Your histogram should include results for both 2019 and 2020.)3. Prepare a written evaluation to accompany the reports you have prepared in requirements 1 and 2. Thisevaluation should discuss the distribution of quality costs in the company, changes in this distributionthat you detect have taken place over the last year, and any other information you believe would be useful to management.4. A member of the management team believes that employees will be more conscientious in their work ifthey are held responsible for mistakes. He suggests that workers should do rework on their own time andthat they also should pay for disposal of defective units and the cost of scrap. The proposal estimates thatthe firm can save another $400,000 in quality costs and the employees are less likely to make as manyerrors. Should the firm implement the proposal? Why or why not?
Cost-of-Quality (COQ) Reporting; Spreadsheet Application Carrie Lee, the president of Lee
Enterprises, was concerned about the results of her company’s new quality control efforts. “Maybe
the emphasis we’ve placed on upgrading our quality
it doesn’t seem to be helping us much right now. I thought improved quality would give a real boost
to sales, but sales have remained flat at about $10,000,000 for the last 2 years.”
Lee Enterprises has seen its market share decline in recent years because of increased foreign
competition. An intensive effort to strengthen the quality control system was initiated a year ago (on
January 1, 2020) in the hope that better quality would strengthen the company’s competitive position and reduce warranty and servicing costs. The following costs (in thousands) relate to quality
and quality control over the last 2 years:
[LO 17-5, 17-7]
2019 2020
Warranty repairs $420 $140
Rework labor 140 200
Supplies used in testing 4 6
Warranty replacements 60 18
Field servicing 180 120
Inspection 76 120
Systems development 64 106
Disposal of defective products 54 76
Net cost of scrap 86 124
Product recalls 340 82
Product testing 98 160
Statistical process control (SPC) — 74
Quality engineering 56 80
Required
1. Prepare a spreadsheet that produces a cost-of-quality (COQ) report for both 2019 and 2020. For each
individual cost, for each of the four category totals, and for total COQ spending calculate (to 2 decimal
places, e.g., 42.884% = 42.88%) the percentage change from 2019 to 2020.
2. Use your spreadsheet to prepare a histogram showing total COQ spending and spending by COQ category. (Note: Your histogram should include results for both 2019 and 2020.)
3. Prepare a written evaluation to accompany the reports you have prepared in requirements 1 and 2. This
evaluation should discuss the distribution of quality costs in the company, changes in this distribution
that you detect have taken place over the last year, and any other information you believe would be useful to management.
4. A member of the management team believes that employees will be more conscientious in their work if
they are held responsible for mistakes. He suggests that workers should do rework on their own time and
that they also should pay for disposal of defective units and the cost of scrap. The proposal estimates that
the firm can save another $400,000 in quality costs and the employees are less likely to make as many
errors. Should the firm implement the proposal? Why or why not?
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