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Managerial Accounting: The Corners...
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Managerial Accounting: The Corners...
Andresen Company had the following quality costs for the years ended June 30, 20X1 and 20X2:
At the end of 20X1, management decided to increase its investment in control costs by 50% for each category’s items, with the expectation that failure costs would decrease by 20% for each item of the failure categories. Sales were $6,000,000 for both 20X1 and 20X2.
Required:
- 1. Calculate the budgeted costs for 20X2, and prepare an interim quality performance report.
- 2. Comment on the significance of the report. How much progress has Andresen made?
1.
Compute budgeted cost for the year 20X2 and present a performance report for the quality costs.
Quality Cost:
Organizations are required to bear costs due to non-conformity of goods or services with the general specifications. These costs are termed as quality costs. Quality costs can be categorized into preventive costs, detective costs, internal failure costs and external failure costs.
Computation of budgeted cost for year 20X2:
| Particulars | Actual 20X1 ($) | Percentage | Budgeted 20X2 ($) |
| Prevention costs: | Â | Â | Â |
| Quality audits | 30,000 | 150% | 45,000 |
| vendor certification | 60,000 | 150% | 90,000 |
| Appraisal costs: | Â | Â | Â |
| Product acceptance | 45,000 | 150% | 67,500 |
| Process acceptance | 37,500 | 150% | 56,250 |
| Internal failure costs: | Â | Â | Â |
| Retesting | 51,000 | 80% | 40,800 |
| Rework | 108,000 | 80% | 86,400 |
| External failure costs: | Â | Â | Â |
| Recalls | 75,000 | 80% | 60,000 |
| Warranty | 165,000 | 80% | 132,000 |
Table (1)
Performance report:
| Particulars | Actual 20X1 ($) | Actual 20X2 ($) (A) | Budgeted 20X2 ($) (B) |
Variance 20X2 ($) |
2.
Provide comments on the performance report.
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