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In: Accounting
Costen, Inc., produces cellphone equipment. Jessica Tomly, Costen’s president, decided to devote more resources to the...
Costen, Inc., produces cellphone equipment. Jessica
Tomly, Costen’s president, decided to devote more resources to the
improvement of product quality after learning that her company had
been ranked fourth in product quality in a 2009 survey of cellphone
users. Costen’s quality-improvement program has now been in
operation for two years, and the cost report shown here has
recently been issued.
Semi-Annual Cost of Quality Report
Costen, Inc.
30 / 06 / 2010
31 / 12/ 2010
30 / 06 / 2011
31 / 12 / 2011
Prevention costs
Maintenance
Supplier training
Design reviews
Total
440 000
20 000
50 000
510 000
440 000
100 000
214 000
754 000
390 000
50 000
210 000
650 000
330 000
40 000
200 000
570 000
Appraisal costs
Incoming inspections
Final testing
Total
108 000
332 000
440 000
123 000
332 000
455 000
90 000
293 000
383 000
63 000
203 000
266 000
Internal failure costs
Rework
Scrap
Total
231 000
124 000
355 000
202 000
116 000
318 000
165 000
71 000
236 000
112 000
67 000
179 000
External failure costs
Warranty repairs
Customer returns
Total
165 000
570 000
735 000
85 000
547 000
632 000
72 000
264 000
336 000
68 000
188 000
256 000
Total quality costs
2 040 000
2 159 000
1 605 000
1 271 000
Total revenues
8 240 000
9 080 000
9 300 000
9 020 000
Required:
4.1 For each period, calculate the
ratio of each cost of quality category to revenues and to total
quality costs.
4.2 Based on the results in 4.1,
would you conclude that Costen’s quality program has been successful? Prepare a
short report to present your case.
Solutions
Expert Solution
| 30.06.2010 | 31.12.2010 | 30.06.2011 | 31.12.2011 | |
| Maintenance Costs | 440,000 | 440,000 | 390,000 | 330,000 |
| Supplier Rating | 20,000 | 100,000 | 50,000 | 40,000 |
| Design Reviews | 50,000 | 214,000 | 210,000 | 200,000 |
| Prevention Costs | 510,000 | 754,000 | 650,000 | 570,000 |
| Incoming Inspections | 108,000 | 123,000 | 90,000 | 63,000 |
| Final Testing | 332,000 | 332,000 | 293,000 | 203,000 |
| Appraisal Costs | 440,000 | 455,000 | 383,000 | 266,000 |
| Rework | 231,000 | 202,000 | 165,000 | 112,000 |
| Scrap | 124,000 | 116,000 | 71,000 | 67,000 |
| Internal Failiure Costs | 355,000 | 318,000 | 236,000 | 179,000 |
| Warranty repairs | 165,000 | 85,000 | 72,000 | 68,000 |
| Customer returns | 570,000 | 547,000 | 264,000 | 188,000 |
| External Failure costs | 735,000 | 632,000 | 336,000 | 256,000 |
| Total Quality Costs | 2,040,000 | 2,159,000 | 1,605,000 | 1,271,000 |
| Total Revenue | 8,240,000 | 9,080,000 | 9,300,000 | 9,020,000 |
| Cost of Good Quality | ||||
| a) Prevention Costs | ||||
| b) Appraisal Costs | ||||
| Cost of Poor Quality | ||||
| a) Internal Failure Costs | ||||
| b) External failure costs | ||||
| Cost of quality | Cost of good quality + cost of poor quality | |||
| Ratio of each cost of quality category to revenues | ||||
| 30.06.2010 | 31.12.2010 | 30.06.2011 | 31.12.2011 | |
| Prevention Costs | 510,000 | 754,000 | 650,000 | 570,000 |
| Revenue | 8,240,000 | 9,080,000 | 9,300,000 | 9,020,000 |
| Ratio of Prevention costs to revenue | 0.06 | 0.08 | 0.07 | 0.06 |
| Appraisal costs | 440,000 | 455,000 | 383,000 | 266,000 |
| Ratio of Appraisal costs to revenue | 0.05 | 0.05 | 0.04 | 0.03 |
| Internal Failiure Costs | 355,000 | 318,000 | 236,000 | 179,000 |
| Ratio of Internal failure costs to revenue | 0.04 | 0.04 | 0.03 | 0.02 |
| External Failure costs | 735,000 | 632,000 | 336,000 | 256,000 |
| Ratio of External failure costs to revenue | 0.09 | 0.07 | 0.04 | 0.03 |
| Total Quality Cost | 2,040,000 | 2,159,000 |
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Tomly, Costen’s president, decided to devote more resources to the
improvement of product quality after learning that her company had
been ranked fourth in product quality in a 2009 survey of cellphone
users. Costen’s quality-improvement program has now been in
operation for two years, and the cost report shown here has
recently been issued.
Semi-Annual Cost of Quality Report
Costen, Inc.
30 / 06 / 2010
31 / 12/ 2010
30 / 06 /...
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