Question

The following information shows last year’s quality-related costs for the Madrigal Company:

Quality engineering	$600,000	Inspection of and testing of incoming materials	480,000
Warranty claims	2,814,000	Repair costs in the field	1,020,000
Product liability lawsuits	5,400,000	Statistical process control	300,000
Research of customer needs	90,000	Product recalls	2,400,000
Maintenance of test equipment	420,000	Waste	840,000
Returned products	1,440,000	Net cost of scrap	762,000
Rework costs	1,440,000	Product quality audits	570,000
Quality training	150,000	Downtime due to defects	150,000
Process control monitoring	1,200,000	Supplier certification	108,000

Total sales for the year were $120,000,000.

Prepare a cost-of-quality report grouping costs into prevention, appraisal, internal failure and external failure.  Show each cost in total and as a percentage of sales.

Type of Cost	Annual Cost	Percent of Sales
Prevention Costs
Total
Appraisal Costs
Total
Internal Failure Costs
Total
External Failure Costs
Total
Total Quality Costs

Answer 1

Answer:-

Quality Cost Report for Ideal Company
Quality Cost Category	Annual Cost	% of Sales
	$
Prevention costs:-
Quality training	150000	0.125
Quality engineering	600000	0.5
Statistical process control	300000	0.25
Supplier certification	108000	0.09
Research of customer needs	90000	0.075
Total	1248000	1.04
Appraisal Costs:
Inspection of and testing of in-comingMaterials	480000	0.4
Process-control monitoring	1200000	1
Product-quality audits	570000	0.475
Maintenance of test equipment	420000	0.35
Total	2670000	2.225
Internal Failure Costs:
Waste	840000	0.7
Net cost of scrap	762000	0.635
Rework costs	1440000	1.2
Downtime due to defects	150000	0.125
Total	3192000	2.66
External Failure Costs:
Product-liability lawsuits	5400000	4.5
Repair costs in the field	1020000	0.85
Warranty claims	2814000	2.345
Returned products	1440000	1.2
Product recalls	2400000	2
Total	13074000	10.895
Total Quality costs	20184000	16.82