Question

Interim Quality Performance Report

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	$90,000	$135,000
Process acceptance	87,000	102,500
Internal failure costs:
Retesting	$100,000	$94,000
Rework	200,000	170,000
External failure costs:
Recalls	$145,000	$116,000
Warranty	315,000	318,000

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 $12,500,000 for both 20x4 and 20x5.

Required:

1. Calculate the budgeted costs for 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".

Davis, Inc.
Interim Standard Performance Report: Quality Costs
For the Year Ended December 31, 20x5
	Actual Costs	Budgeted Costs	Variance	Unfavorable, Favorable or No effect
Prevention costs:
	$	$
Total prevention costs	$	$
Appraisal costs:
	$	$
			$
Total appraisal costs	$	$	$
Internal failure costs:
	$	$	$
Total internal failure costs	$	$	$
External failure costs:
	$	$
Total external failure costs	$	$	$
Total quality costs	$	$	$
Percentage of sales	%	%	%

2. What can be inferred from the report regarding the progress Davis has made?

3. What if sales were $12,500,000 for 20x4 and $15,625,000 for 20x5? What adjustment to budgeted rework costs would be made? (Note: Quality auditing is a discretionary cost and its budget is not affected by the change in sales revenue in 20x5.)

New total budgeted rework costs: $

Answer 1

ekkarill92

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1. Budgeted Cost for 2005
	Actuals for 2004	% increase or decrease	Budgeted for 2005	Actuals for 2005	Variance	Variance %	Favourable/ Unfavourable
Prevention costs:
Quality audits	66,000	50% increase	99,000	99,000	-	0%	No effect
Vendor certification	121,500	50% increase	182,250	182,250	-	0%	No effect
	187,500		281,250	281,250	-	-
Appraisal costs
Product acceptance	90,000	50% increase	135,000	135,000	-	0%	No effect
Process acceptance	87,000	50% increase	130,500	102,500	28,000	21%	Favourable
	177,000		265,500	237,500	28,000	0
Internal failure costs:
Retesting	100,000	20% decrease	80,000	94,000	(14,000)	-18%	Unavourable
Rework	200,000	20% decrease	160,000	170,000	(10,000)	-6%	Unavourable
	300,000		240,000	264,000	(24,000)	(0)
External failure costs:
Recalls	145,000	20% decrease	116,000	116,000	-	0%	No effect
Warranty	315,000	20% decrease	252,000	318,000	(66,000)	-26%	Unavourable
	460,000		368,000	434,000	(66,000)	(0)
Total Quality Costs	1,124,500		1,154,750	1,216,750
Sales	12,500,000		12,500,000	12,500,000
% of sales	9%		9%	10%
2. From the above analysis, measures for Control Costs has lead to favourable balances whereas failure costs has lead to unfavourable balances
3. Change in sales
	Budgeted for 2005 @ sales 12,500,000	Budgeted for 2005 @ sales 15,625,000	Comments
Prevention costs:
Quality audits	99,000	99,000	Quality audit cost will remain same irrespective of change in sales
Vendor certification	182,250	227,813
	281,250	326,813
Appraisal costs
Product acceptance	135,000	168,750
Process acceptance	130,500	163,125
	265,500	331,875
Internal failure costs:
Retesting	80,000	100,000
Rework	160,000	200,000	Budegeted costs has to be increased by 40,000
	240,000	300,000
External failure costs: