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Managerial Accounting: The Corners...
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Managerial Accounting: The Corners...
Bradshaw 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 $5,000,000, by how much would profits increase if quality improves so that quality costs are only 3% of sales?
1.
Prepare quality cost report.
Quality Cost:
Organizations are required to bear costs due to non-conformity of goods or services with the general specifications. These costs are termed as quality costs. Quality costs can be categorized into preventive costs, detective costs, internal failure costs and external failure costs.
Quality cost report:
| Category | Quality cost | Amount ($) | Total ($) | Percentage of sales (%) |
| Prevention cost | Vendor certification | 43,500 | 100,000 | 2% |
| Quality training | 56,500 | |||
| Detection cost | Field testing | 54,000 | 140,000 | 2... |
2.
Construct a category wise pie chart.
3.
Identify the increase in profit if quality costs are 3% of sales.
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