Question

Cost of Quality Report

Meagher Solutions Inc. manufactures memory chips for personal computers. An activity analysis was conducted, and the following activity costs were identified with the manufacture and sale of memory chips:

a. Identify the cost of quality classification for each activity.

Quality Activities	Activity Cost				Quality Cost Classification
Correct shipment errors		$150,000
Disposing of scrap		95,000
Emergency equipment maintenance		125,000
Employee training		50,000
Final inspection		80,000
Inspecting incoming materials		60,000
Preventive equipment maintenance		40,000
Processing customer returns		90,000
Scrap reporting		45,000
Supplier development		15,000
Warranty claims		250,000
Total		$1,000,000

b. Prepare a cost of quality report. Assume that the sales for the period were $4,000,000. If required, round percents to one decimal place.

Meagher Solutions Inc.
Cost of Quality Report
Quality Cost Classification	Quality Cost	Percent of Total Quality Cost	Percent of Total Sales
Prevention	$	%	%
Appraisal		%	%
Internal failure		%	%
External failure		%	%
Total	$	%	%

c. The category with the fewest number of quality activities is . Nearly fifty percent of the quality activity costs are . The highest single cost is warranty claims, which is a(n) . Disposing of scrap, emergency equipment maintenance, and scrap reporting are all .

Answer 1

A)

Identify the cost of quality classification for each activity.

Quality Activities	Activity Cost	Type
Correct shipment errors	150000	External failure
Disposing of scrap	95000	Internal failure
Emergency equipment maintenance	125000	Internal failure
Employee training	50000	Prevention
Final inspection	80000	Appraisal
Inspecting incoming materials	60000	Appraisal
Preventive equipment maintenance	40000	Prevention
Processing customer returns	90000	External failure
Scrap reporting	45000	Internal failure
Supplier development	15000	Prevention
Warranty claims	250000	External failure
Total	1000000

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b)

	Quality cost	% of quality cost	% of quality Sales
Prevention	105000	10.50%	2.63%
Appraisal	140000	14.00%	3.50%
Internal failure	265000	26.50%	6.63%
External failure	490000	49.00%	12.25%
	1000000	100.00%	25.00%

               

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c)

The category with the fewest number of quality activities is . prevention

Nearly fifty percent of the quality activity costs are . External failure

The highest single cost is warranty claims, which is a(n) . External failure

Disposing of scrap, emergency equipment maintenance, and scrap reporting are all . Internal failure