Question

The following information shows last year's quality-related costs for the Tomlinson Company:

Item	Amount
Quality engineering	$588,000
Warranty claims	2,784,000
Product liability lawsuits	5,352,000
Research of customer needs	60,000
Maintenance of test equipment	408,000
Returned products	1,464,000
Rework costs	1,488,000
Quality training	180,000
Process control monitoring	1,260,000
Inspection of and testing of incoming materials	516,000
Repair costs in the field	996,000
Statistical process control	288,000
Product recalls	2,424,000
Waste	900,000
Net cost of scrap	828,000
Product quality audits	552,000
Downtime due to defects	156,000
Supplier certification	144,000

Total sales for the year were $120,000,000.

A.     Prepare a cost-of-quality report grouping costs into prevention, appraisal, internal failure, and external failure. Also show costs as a percent of sales.

B.     Interpret the data and make recommendations to Tomlinson 's management.

Requirement

(a) Prepare a cost-of-quality report grouping costs into prevention, appraisal, internal failure, and external failure. Also show costs as a percent of sales. (Leave unused cells blank. Round the percentages to the nearest

	Annual Cost	% of sales
Prevention Costs:
Total

Answer 1

		Amount	% of Sales
Sales		$120,000,000	100%
Prevention Cost
Quality engineering	$588,000
Research of customerneeds	$60,000
Required Products	$1,464,000
Quality training	$180,000
Product quality audits	$552,000
Supplier certification	$144,000	$2,988,000	2.49%
Appraisal Cost
Maintenance of testequipment	$408,000
Inspection of andtesting of incoming materials	$516,000
Process controlmonitoring	$1,260,000
Repair costs in thefield	$996,000
Statistical process control	$288,000	$3,468,000	2.89%
Internal Failure Cost
Rework costs	$1,488,000
Waste	$900,000
Net cost of scrap	$828,000
Downtime due to defects	$156,000	$3,372,000	2.81%
External Failure Cost
Warranty claims	$2,784,000
Product liability lawsuits	$5,352,000
Product recalls	$2,424,000	$10,560,000	8.80%
Total Quality Cost		$20,388,000	16.99%