Question

Quality Cost Report

Bradshaw Company reported sales of $5,000,000 in 20X1. At the end of the fiscal year (June 30, 20X1), the following quality costs were reported:

Vendor certification		$43,500
Warranty		100,000
Rework		125,000
Field testing		54,000
Quality training		56,500
Process acceptance		40,000
Scrap		75,000
Recalls		90,000
Product inspection		46,000
Returned goods		70,000

Required:
1. Prepare a quality cost report. Round percentage to two decimals.

Bradshaw Company Quality Cost Report For the Year Ended June 30, 20X1
	Quality Costs				Percentage of Sales
Prevention costs:
Vendor certification		$
Quality training				$			%
Appraisal costs:
Field testing		$
Process acceptance
Product inspection
Internal failure costs:
Rework		$
Scrap
External failure costs:
Warranty		$
Recalls
Returned goods
Total quality costs				$			%

2. Failure costs are almost two-thirds of the total costs. This indicates that there is still ample opportunity for improving quality by investing more in prevention and appraisal activities.

3. Assuming sales of $5,000,000, by how much would profits increase if quality improves so that quality costs are only 3% of sales?
Profits would increase by $

Answer 1

Answer 1
A quality cost report
Bradshaw Company
Quality Cost Report
For the Year Ended June 30, 20X1
Quality Costs	Quality Cost	Percentage of sales
Prevention costs:
Vendor certification	$43,500.00	0.87%
Quality training	$56,500.00	1.13%
Appraisal costs:
Field testing	$54,000.00	1.08%
Process acceptance	$40,000.00	0.80%
Product inspection	$46,000.00	0.92%
Internal failure costs:
Rework	$125,000.00	2.50%
Scrap	$75,000.00	1.50%
External failure costs:
Warranty	$100,000.00	2.00%
Recalls	$90,000.00	1.80%
Returned goods	$70,000.00	1.40%
Total quality costs	$700,000.00	14.00%
Answer 2
Revised Total quality cost = Sales * percentage of sales = $50,00,000 * 3% = $1,50,000
Increase in profit = Previous total quality cost - Revised total qaulity cost = $700000 - $150000 = $5,50,000