a. Compute the total profit lost by Ridenour Company in its first year of operation by selling defective units as seconds rather than reworking them and selling them at the regular price. $ b. Compute the company’s total failure cost for the year. $ c. Compute the company’s total quality cost for the year. $
Cost of quality
During its first year of operations, Ridenour Company produced 51,740 electronic tablets. Of total production, 1,300 were found defective by quality appraisers. Six hundred of the defective units were reworked and sold through regular channels at the original price; the rest were sold as seconds without rework. (The uncorrected defect did not pose a hazard to customers.) The electronic tablets are sold with a two-year warranty; seconds have a six-month warranty.
Ridenour Company spent $585,000 for prevention measures and $254,800 on appraisal. Following is the firm's income statement, which appropriately does not reflect any income taxes:
| Ridenour Company | ||
|---|---|---|
| Income Statement | ||
| For Year Ended December 31 | ||
| Regular sales | $13,317,200 | |
| Sales of seconds | 72,800 | $13,390,000 |
| Cost of goods sold | ||
| Original production costs | $4,160,000 | |
| Rework costs | 27,300 | |
| Prevention and appraisal costs | 839,800 | 5,027,100 |
| Gross margin | $8,362,900 | |
| Selling and administrative expenses (all fixed) | 2,400,000 | |
| Net income | $5,962,900 |
Regular units sold totaled 51,220 and units of seconds sold totaled 520. Rework units sold totaled 780.
a. Compute the total profit lost by Ridenour Company in its first year of operation by selling defective units as seconds rather than reworking them and selling them at the regular price. $
b. Compute the company’s total failure cost for the year. $
c. Compute the company’s total quality cost for the year. $
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