Question

The following data is from the 3rd floor of the 2-Legit Manufacturing Facility Sales = $4,700,000 Activity Cost Issuing an RMA $564,000 Redesign to reduce process variation to better meet tolerances $357,200 Rejection from Q.C. $376,000 Raw Material set-up verification $206,800 Construct a Cost of Quality Report. Use the cost of quality classifications not the specific activity in your report. Go to two decimal places.

Answer 1

Cost of Quality Report

Category	Cost ($)	% of Sales
Prevention Costs:
Redesign cost	357200	7.60%
Appraisal Costs:
Raw Material set-up varification	206800	4.40%
Internal Failure Costs:
Rejection from Q.C.	376000	8.00%
External Failure Costs:
Activity cost issuing an RMA	564000	12.00%

Notes:

• Prevention costs are the costs incurred to avoid or minimize the number of defects in the first place.
• Appraisal costs are those costs that are incurred to identify defective products before they are shipped to customers.
• Internal failure costs are incurred to remove defects from the products before shipping them to customers.
• External failure costs are incurred after the product shipped to customers such as warranties, replacements, lost sales because of reputation issues, Payment of damages etc.