Question

In: Accounting

The following represents the financial information for Domingo Corporation for two months. March April Sales revenue...

The following represents the financial information for Domingo Corporation for two months.

March April
Sales revenue $ 540,000 $ 430,000
Costs
Process inspection $ 1,500 $ 1,840
Scrap 1,940 1,870
Quality training 19,500 13,500
Warranty repairs 4,200 5,100
Product testing equipment 6,600 7,100
Customer complaints 2,900 3,100
Rework 16,000 19,500
Preventive maintenance 12,700 10,200
Materials inspection 7,400 5,000
Field testing 8,600 11,600


Required:

a. Classify these items into Prevention, Appraisal, Internal failure, or External failure costs.

The following represents the financial information for Domingo Corporation for two months.

March April
Sales revenue $ 540,000 $ 430,000
Costs
Process inspection $ 1,500 $ 1,840
Scrap 1,940 1,870
Quality training 19,500 13,500
Warranty repairs 4,200 5,100
Product testing equipment 6,600 7,100
Customer complaints 2,900 3,100
Rework 16,000 19,500
Preventive maintenance 12,700 10,200
Materials inspection 7,400 5,000
Field testing 8,600 11,600


Required:

a. Classify these items into Prevention, Appraisal, Internal failure, or External failure costs.

b. Calculate the ratio of the prevention, appraisal, internal failure, and external failure costs to sales for March and April.

Solutions

Expert Solution

Activity Category
Process inspection Prevention cost
Scrap Internal Failure Cost
Quality trainning Prevention cost
Warranty repairs External failure costs
Product testing equipment Appraisal Cost
Customer complaints External failure costs
Rework Internal Failure Cost
Preventive inspection Prevention cost
Material inspection Prevention cost
Field testing Appraisal Cost
March April
Prevention cost 7.6% 7.1%
Appraisal Cost 2.8% 4.3%
Internal Failure Cost 3.3% 5.0%
External failure costs 1.3% 1.9%
Workings:
March April
Annual Cost % of Sales Annual Cost % of Sales
(a) [(a) / $540000] (b) [(b) / $430000
Sales $                       5,40,000 $    4,30,000
Prevention cost
Process inspection $                             1,500 $          1,840
Quality trainning $                           19,500 $        13,500
Preventive inspection $                           12,700 $        10,200
Material inspection $                             7,400 $          5,000
Total $                           41,100 7.6% $        30,540 7.1%
Appraisal Cost
Product testing equipment $                             6,600 $          7,100
Field testing $                             8,600 $        11,600
Total $                           15,200 2.8% $        18,700 4.3%
Internal Failure Cost
Scrap $                             1,940 $          1,870
Rework $                           16,000 $        19,500
Total $                           17,940 3.3% $        21,370 5.0%
External failure costs
Warranty repairs $                             4,200 $          5,100
Customer complaints $                             2,900 $          3,100
Total $                             7,100 1.3% $          8,200 1.9%

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