1.
Introduction: A cost-of-quality (COQ) depicts quality-related costs that a firm incurs during a reporting period. These costs are bifurcated into four categories including prevention costs, appraisal costs, internal failure costs, and external failure costs.
The total cost of quality for last year and this year.
2.
Introduction: A cost-of-quality (COQ) report depicts quality-related costs that a firm incurs during a reporting period, that can help management as well as users to determine total spending on quality, identify the areas that need attention, and improvement, and overtime recognizes the effects of their actions on both total quality costs and the components of overall quality costs.
The cost of each category as a percent of the total cost of quality of last year.
3.
Introduction: A cost-of-quality (COQ) report depicts quality-related costs that a firm incurs during a reporting period, that can help management as well as users to determine total spending on quality, identify the areas that need attention, and improvement, and overtime recognizes the effects of their actions on both total quality costs and the components of overall quality costs.
The cost of each category as a percent of the total cost of quality of last year.
4.
Introduction: A COQ report can help management as well as users to determine total spending on quality, identify the areas that need attention, and improvement, and over time recognizes the effects of their actions on both total quality costs and the components of overall quality costs.
To discuss: The efforts of the company in managing the costs of quality over two years period and whether the performance is favorable or unfavorable and the reason for it.
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Chapter 12 Solutions
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- Quality Cost Report Whitley Company had total sales of 1,000,000 for the year ending 20X1. The costs of quality are given below. Required: 1. Prepare a quality cost report, classifying costs by category and expressing each category as a percentage of sales. What message does the cost report provide? 2. Prepare a bar graph and pie chart that illustrate each categorys contribution to total quality costs. Comment on the significance of the distribution.arrow_forwardCost of Quality and Value-Added/Non-Value-Added Reports for a Service Company Three Rivers Inc. provides cable TV and Internet service to the local community. The activities and activity costs of Three Rivers are identified as follows: a. Identify the cost of quality classification for each activity and whether the activity is value-added or non-value-added. Value-Added/ Non-Value-Added Classification Quality Control Activities Billing error correction Cable signal testing Reinstalling service (installed incorrectly the first time) Repairing satellite equipment Repairing underground cable connections to the customer Replacing old technology cable with higher quality cable Replacing old technology signal switches with higher quality switches Responding to customer home repair requests Training employees Total activity cost Activity Cost $35,400 108,800 76,000 34,000 23,000 151,400 173,000 42,400 36,000 $680,000 Quality Cost Classification Maxarrow_forwardCost of quality report A. Using the information in Exercise 15, identify the cost of quality classification for each activity. B. Prepare a cost of quality report. Assume sales for the period were 4,000,000. Round percentages to one decimal place. C. Interpret the cost of quality report.arrow_forward
- The controller of Emery, Inc. has computed quality costs as a percentage of sales for the past 5 years (20X1 was the first year the company implemented a quality improvement program). This information is as follows: Required: 1. Prepare a trend graph for total quality costs. Comment on what the graph has to say about the success of the quality improvement program. 2. Prepare a graph that shows the trend for each quality cost category. What does the graph have to say about the success of the quality improvement program? Does this graph supply more insight than the total cost trend graph does? 3. Prepare a graph that compares the trend in relative control costs versus relative failure costs. Comment on the significance of this trend.arrow_forwardA company is spending 70,000 per year for inspecting, 60,000 per year for purchasing, and 56,000 per year for reworking products. What is a good estimate of non-value-added costs? a. 126,000 b. 70,000 c. 56,000 d. 130,000arrow_forwardBradshaw Company reported sales of 5,000,000 in 20X1. At the end of the fiscal year (June 30, 20X1), the following quality costs were reported: Required: 1. Prepare a quality cost report. 2. Prepare a graph (pie chart or bar graph) that shows the relative distribution of quality costs, and comment on the distribution. 3. Assuming sales of 5,000,000, by how much would profits increase if quality improves so that quality costs are only 3% of sales?arrow_forward
- Muskogee Company had sales of 60,000,000 in 20x1. In 20x5, sales had increased to 75,000,000. A quality improvement program was implemented at the beginning of 20x1. Overall conformance quality was targeted for improvement. The quality costs for 20x1 and 20x5 follow. Assume any changes in quality costs are attributable to improvements in quality. Required: 1. Compute the quality cost-to-sales ratio for each year. Is this type of improvement possible? 2. Calculate the relative distribution of costs by category for 20x1. What do you think of the way costs are distributed? (A pie chart or bar graph may be of some help.) How do you think they will be distributed as the company approaches a zero-defects state? 3. Calculate the relative distribution of costs by category for 20x5. What do you think of the level and distribution of quality costs? (A pie chart or bar graph may be of some help.) Do you think further reductions are possible? 4. The quality manager for Muskogee indicated that the external failure costs reported are only the measured costs. He argued that the 20x5 external costs were much higher than those reported and that additional investment ought to be made in control costs. Discuss the validity of his viewpoint. 5. Suppose that the manager of Muskogee received a bonus equal to 10 percent of the quality cost savings each year. Do you think that gainsharing is a good or a bad idea? Discuss the risks of gainsharing.arrow_forwardCost Classification Loring Company incurred the following costs last year: Required: 1. Classify each of the costs using the following table format. Be sure to total the amounts in each column. Example: Direct materials, 216,000. 2. What was the total product cost for last year? 3. What was the total period cost for last year? 4. If 30,000 units were produced last year, what was the unit product cost?arrow_forwardEvans Company had total sales of 3,000,000 for fiscal 20x5. The costs of quality-related activities are given below. Required: 1. Prepare a quality cost report, classifying costs by category and expressing each category as a percentage of sales. What message does the cost report provide? 2. Prepare a bar graph and pie chart that illustrate each categorys contribution to total quality costs. Comment on the significance of the distribution. 3. What if, five years from now, quality costs are 7.5 percent of sales, with control costs being 65 percent of the total quality costs? What would your conclusion be?arrow_forward
- Gagnon Company reported the following sales and quality costs for the past four years. Assume that all quality costs are variable and that all changes in the quality cost ratios are due to a quality improvement program. Required: 1. Compute the quality costs for all four years. By how much did net income increase from Year 1 to Year 2 because of quality improvements? From Year 2 to Year 3? From Year 3 to Year 4? 2. The management of Gagnon Company believes it is possible to reduce quality costs to 2.5 percent of sales. Assuming sales will continue at the Year 4 level, calculate the additional profit potential facing Gagnon. Is the expectation of improving quality and reducing costs to 2.5 percent of sales realistic? Explain. 3. Assume that Gagnon produces one type of product, which is sold on a bid basis. In Years 1 and 2, the average bid was 400. In Year 1, total variable costs were 250 per unit. In Year 3, competition forced the bid to drop to 380. Compute the total contribution margin in Year 3 assuming the same quality costs as in Year 1. Now, compute the total contribution margin in Year 3 using the actual quality costs for Year 3. What is the increase in profitability resulting from the quality improvements made from Year 1 to Year 3?arrow_forwardCost of Quality and Value-Added/Non-Value-Added Reports for a Service Company Three Rivers Inc. provides cable TV and Internet service to the local community. The activities and activity costs of Three Rivers are identified as follows: a. Identify the cost of quality classification for each activity and whether the activity is value-added or non-value-added. Value-Added/ Activity Quality Cost Non-Value-Added Quality Control Activities Cost Classification Classification Billing error correction $46,200 Cable signal testing 115,500 Reinstalling service (installed incorrectly the first 99,300 time) Repairing satellite equipment 46,200 Repairing underground cable connections to the 30,000 customer Replacing old technology cable with higher quality 158,500 cable Replacing old technology signal switches with 181,100 higher quality switches Responding to customer home repair requests 55,500 Training employees 37,700 Total activity cost $770,000arrow_forwardQuality Improvement and Profitability Objective Gagnon Company reported the following sales and quality costs for the past four years. Assume that all quality costs are variable and that all changes in the quality cost ratios are due to a quality improvement program. Year Sales Revenues Quality Costs as a Percent of Revenues 1 $20,000,000 25% 2 22,000,000 22 3 22,000,000 18 4 24,000,000 14arrow_forward
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