In: Accounting
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".
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 $ 99,000a $ 0
Vendor certification...................... 182,250 182,250a 0
Total prevention costs............ $ 281,250 $ 281,250 $ 0
Appraisal costs:
Product acceptance..................... $ 126,000 $ 126,000a $ 0
Process acceptance.................... 110,000 157,500a 47,500 F
Total appraisal costs............... $ 236,000 $ 283,500 $ 47,500 F
Internal failure costs:
Retesting......................................... $ 98,000 $ 83,200b $ 14,800 U
Rework............................................ 185,000 160,000b 25,000 U
Total internal failure costs..... $ 283,000 $ 243,200 $ 39,800 U
External failure costs:
Recalls............................................. $ 112,000 $ 112,000b $ 0
Warranty.......................................... 298,000 256,000b 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)