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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Cassara, Inc., had the following quality costs for the years ended December 31, 20X1 and 20X2:

Chapter 13, Problem 29BEB, Cassara, Inc., had the following quality costs for the years ended December 31, 20X1 and 20X2: At

At the end of 20X1, management decided to increase its investment in control costs by 40% for each category’s items, with the expectation that failure costs would decrease by 25% for each item of the failure categories. Sales were $ 12,000,000 for both 20X1 and 20X2.

Required:

  1. 1. Calculate the budgeted costs for 20X2, and prepare an interim quality performance report.
  2. 2. Comment on the significance of the report. How much progress has Cassara made?

1.

To determine

Compute budgeted cost for the year 20X2 and present a performance report for the quality costs.

Explanation

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:

ParticularsActual 20X1 ($)PercentageBudgeted 20X2 ($)
Prevention costs:   
Quality audits60,000140%84,000
vendor certification120,000140%168,000
Appraisal costs:   
Product acceptance90,000140%126,000
Process acceptance75,000140%105,000
Internal failure costs:   
Retesting100,00075%75,000
Rework220,00075%165,000
External failure costs:   
Recalls160,00075%120,000
Warranty360,00075%270,000

Table (1)

Performance report:

ParticularsActual 20X1 ($)Actual 20X2 ($) (A)Budgeted 20X2 ($) (B)

Variance 20X2 ($)

(BA)

Prevention costs:

2.

To determine

Provide comments on the performance report.

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