Question

Davis, Inc., had the following quality costs for the years ended December 31, 20x4 and 20x5:

	20x4	20x5
Prevention costs:
Quality audits	$66,000	$99,000
Vendor certification	121,500	182,250
Appraisal costs:
Product acceptance	$84,000	$126,000
Process acceptance	105,000	110,000
Internal failure costs:
Retesting	$104,000	$98,000
Rework	200,000	185,000
External failure costs:
Recalls	$140,000	$112,000
Warranty	320,000	298,000

At the end of 20x4, management decided to increase its investment in control costs by 50 percent for each category’s items with the expectation that failure costs would decrease by 20 percent for each item of the failure categories. Sales were $11,000,000 for both 20x4 and 20x5.

Prepare an interim quality performance report. Enter all answers as positive amounts. If there is no variance enter "0" for your answer. If the budget variance amount is unfavorable select "Unfavorable" in the last column of the table, select "Favorable" if it is favorable, or No effect if there is no change. Round percentage answers to two decimal places. For example, 5.789% would be entered as "5.79".

Answer 1

1.                                                                      Davis, Inc.

                                 Interim Standard Performance Report: Quality Costs

                                      For the Year Ended December 31, 20X5

                                                                                   Actual             Budgeted

                                                                                    Costs                 Costs           Variance

        Prevention costs:

            Quality audits.................................     $     99,000         $     99,000^a         $          0

            Vendor certification......................           182,250              182,250^a                      0

                 Total prevention costs............     $   281,250         $   281,250           $          0

        Appraisal costs:

            Product acceptance.....................     $   126,000         $   126,000^a         $          0

            Process acceptance....................           110,000              157,500^a            47,500 F

                 Total appraisal costs...............     $   236,000         $   283,500           $ 47,500 F

        Internal failure costs:

            Retesting.........................................     $     98,000          $     83,200^b          $ 14,800 U

            Rework............................................           185,000              160,000^b            25,000 U

                 Total internal failure costs.....     $   283,000         $   243,200           $ 39,800 U

        External failure costs:

            Recalls.............................................     $   112,000         $   112,000^b          $          0

            Warranty..........................................           298,000              256,000^b            42,000 U

                 Total external failure costs....     $ 410,000         $   368,000           $ 42,000 U

        Total quality costs.............................     $1,210,250                           $           1,175,950   $          34,300        U

        Percentage of sales..........................            11.00%               10.69%              0.31% U

          ^a20X4 actual control cost × 1.50 (e.g., Quality audits = $66,000 × 1.50 =

         $99,000)

          ^b20X4 actual failure cost × 0.80 (e.g., Retesting = $104,000 × 0.8 = $83,200)