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Interim Quality Performance Report Davis, Inc., had the following quality costs for the years ended December...

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: $

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ekkarill92 answered 2 years ago
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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: