Question

Cornerstone Exercise 14.2 (Algorithmic)

Interim Quality Performance Report

Davis, Inc., had the following quality costs for the years ended December 31, 2014 and 2015:

	2014	2015
Prevention costs:
Quality audits	$68,000	$102,000
Vendor certification	125,500	188,250
Appraisal costs:
Product acceptance	$91,000	$136,500
Process acceptance	97,000	107,500
Internal failure costs:
Retesting	$92,000	$82,000
Rework	173,000	214,000
External failure costs:
Recalls	$127,500	$102,000
Warranty	315,000	318,000

At the end of 2014, 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 $11,000,000 for both 2014 and 2015.

Required:

1. Calculate the budgeted costs for 2015.

$

Hide Prepare an interim quality performance report. Note: Enter all answers as positive amounts. If there is no variance enter "0" for your answer. If the budget variance amount is unfavorable enter "U" in the last column of the table, enter"F" if it is favorable, or NA 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, 2015 Actual Costs Budgeted Costs Variance U, F or NA Prevention costs: Process acceptance Product acceptance Quality audits Recalls Retesting Rework Warranty Correct 14 of Item 2 $ Correct 15 of Item 2 $ Correct 16 of Item 2 Correct 17 of Item 2 Correct 18 of Item 2 Process acceptance Product acceptance Recalls Retesting Rework Vendor certification Warranty Correct 19 of Item 2 Correct 20 of Item 2 Correct 21 of Item 2 Correct 22 of Item 2 Correct 23 of Item 2 Total prevention costs $ Correct 25 of Item 2 $ Correct 26 of Item 2 Correct 27 of Item 2 Correct 28 of Item 2 Appraisal costs: Product acceptance Quality audits Recalls Retesting Rework Vendor certification Warranty Correct 34 of Item 2 $ Correct 35 of Item 2 $ Correct 36 of Item 2 Correct 37 of Item 2 Correct 38 of Item 2 Process acceptance Quality audits Recalls Retesting Rework Vendor certification Warranty Correct 39 of Item 2 Correct 40 of Item 2 Correct 41 of Item 2 $ Correct 42 of Item 2 Correct 43 of Item 2 Total appraisal costs $ Correct 45 of Item 2 $ Correct 46 of Item 2 $ Correct 47 of Item 2 Correct 48 of Item 2 Internal failure costs: Process acceptance Product acceptance Quality audits Recalls Retesting Vendor certification Warranty Correct 54 of Item 2 $ Correct 55 of Item 2 $ Correct 56 of Item 2 $ Correct 57 of Item 2 Correct 58 of Item 2 Process acceptance Product acceptance Quality audits Recalls Rework Vendor certification Warranty Correct 59 of Item 2 Correct 60 of Item 2 Correct 61 of Item 2 Correct 62 of Item 2 Correct 63 of Item 2 Total internal failure costs $ Correct 65 of Item 2 $ Correct 66 of Item 2 $ Correct 67 of Item 2 Correct 68 of Item 2 External failure costs: Process acceptance Product acceptance Quality audits Recalls Retesting Rework Vendor certification Correct 74 of Item 2 $ Correct 75 of Item 2 $ Correct 76 of Item 2 Correct 77 of Item 2 Correct 78 of Item 2 Process acceptance Product acceptance Quality audits Retesting Rework Vendor certification Warranty Correct 79 of Item 2 Correct 80 of Item 2 Correct 81 of Item 2 Correct 82 of Item 2 Correct 83 of Item 2 Total external failure costs $ Correct 85 of Item 2 $ Correct 86 of Item 2 $ Correct 87 of Item 2 Correct 88 of Item 2 Total quality costs $ Correct 90 of Item 2 $ Correct 91 of Item 2 $ Correct 92 of Item 2 Correct 93 of Item 2 Percentage of sales % Correct 95 of Item 2 % Correct 96 of Item 2 % Correct 97 of Item 2 2. What can be inferred from the report regarding the progress Davis has made? - Select your answer -Davis has not come close to meeting the planned outcomesDavis has come very close to meeting the planned outcomesDavis has exceeded the planned outcomes 3. What if sales were $11,000,000 for 2014 and $13,750,000 for 2015? 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 2015.) New total budgeted rework costs: $

Answer 1

	2014			2015			2015
	Actual		% of actual sales	Actual		% of actual sales	Budgeted		% of actual sales	Variance	Results
Sales	11000000			11000000
Prevention Costs
Quality Audits	68000			102000			102000			0	NA
Vendor Certification	125500			188250			188250			0	NA
Total		193500	1.76%		290250	2.64%		290250	2.64%	0	NA
Appraisal Costs
Production Acceptance	91000			136500			136500			0	NA
Process Acceptance	97000			107500			145500			38000	F
Total		188000	1.71%		244000	2.22%		282000	2.56%	38000	F
Internal Failure Costs
Retesting	92000			82000			73600			-8400	U
Rework	173000			214000			138400	1.26%		-75600	U
Total		265000	2.41%		296000	2.69%		212000	1.93%	-84000	U
External Failure Costs
Recalls	127500			102000			102000			0	NA
Warranty	315000			318000			252000			-66000	U
Total		442500	4.02%		420000	3.82%		354000	3.22%	-66000	U
Total Costs		1089000	9.90%		1250250	11.37%		1138250	10.35%	-112000	U
	2014			2015			2015
	Actual		% of actual sales	Actual		% of actual sales	Budgeted		% of actual sales	Variance	Results
Sales	11000000			13750000
Prevention Costs
Quality Audits	68000			102000			102000			0	NA
Vendor Certification	125500			188250			188250			0	NA
Total		193500	1.76%		290250	2.11%		290250	2.11%	0	NA
Appraisal Costs
Production Acceptance	91000			136500			136500			0	NA
Process Acceptance	97000			107500			145500			38000	F
Total		188000	1.71%		244000	1.77%		282000	2.05%	38000	F
Internal Failure Costs
Retesting	92000			82000			73600			-8400	U
Rework	173000			214000			138400	1.01%		-75600	U
Total		265000	2.41%		296000	2.15%		212000	1.54%	-84000	U
External Failure Costs
Recalls	127500			102000			102000			0	NA
Warranty	315000			318000			252000			-66000	U
Total		442500	4.02%		420000	3.05%		354000	2.57%	-66000	U
Total Costs		1089000	9.90%		1250250	9.09%		1138250	8.28%	-112000	U
Part 2": From the above analysis it can be said that the overll cost of 2015 is showing unfavourable results as actual cost has exceeded the budgeted cost by $ 112000 Part 3: Rework cost is budgeted at 1.26% of Actual sales. If actual sales is 13750000 then the budgeted rework cost would be									13750000*1.26%
									173250
Therefore the total budgeted rework cost be increased by									$173250-138400
								$	34850