Question

Hartnett Company's quality cost report is to be based on the following data: Depreciation of test equipment $ 80,000 Quality data gathering, analysis, and reporting $ 15,000 Warranty repairs and replacements $ 68,000 Net cost of scrap $ 93,000 Disposal of defective products $ 81,000 Debugging software errors $ 22,000 Statistical process control activities $ 21,000 Test and inspection of in-process goods $ 52,000 Product recalls $ 40,000 Required: Prepare a Quality Cost Report in good form with separate sections for prevention costs, appraisal costs, internal failure costs, and external failure costs. Garrison 16e Rechecks 2018-06-07

Answer 1

Notes:

1) Depreciation of test equipment $ 80,000 - This Cost forms part of Equipment or Machine maintenance which is a form of Prevention Cost and serves as an indicator of wear and tear of the Equipment or machine and the requirement of regular maintenance.

2) Quality data gathering, analysis, and reporting $ 15,000 - This cost contributes to the appraisal efforts of the level of quality being achieved in the products and as such is an Appraisal Cost.

3) Warranty repairs and replacements $ 68,000 - This is a cost that is incurred after shipment to the customer and as such is an External Failure Cost.

4) Net cost of scrap $ 93,000 - This is a cost which is incurred prior (BEFORE) to delivery or shipment to the customer and as such is an Internal Failure Cost.

5) Disposal of defective products $ 81,000 - This is a cost which is incurred prior (BEFORE) to delivery or shipment to the customer and as such is an Internal Failure Cost.

6) Debugging software errors $ 22,000 - This cost ensures that there is no deficiencies in the production process and enables prevention of potential losses due to issues in production and as such is a Prevention Cost.

(If the product being sold is software, then Debugging can form part of Failure costs, but we have assumed that the software is used for the production process and enables prevention of defects)

7) Statistical process control activities $ 21,000 - This is a control to prevent any issues that arise in the production process and as such is a Prevention Cost.

8) Test and inspection of in-process goods $ 52,000 - This cost contributes to the appraisal efforts of the level of quality being achieved in the products and as such is an Appraisal Cost.

9) Product recalls $ 40,000 - This is a cost that is incurred after shipment to the customer and as such is an External Failure Cost.