Question

In response to intensive foreign competition, the management of Florex Company has attempted over the past year to improve the quality of its products. A statistical process control system has been installed and other steps have been taken to decrease the amount of warranty and other field costs, which have been trending upward over the past several years. Costs relating to quality and quality control over the last two years are given below: Costs (in thousands) Last Year This Year Inspection $ 720 $ 909 Quality engineering $ 450 $ 765 Depreciation of test equipment $ 675 $ 270 Rework labor $ 1,080 $ 1,530 Statistical process control $ 0 $ 225 Cost of field servicing $ 1,350 $ 1,260 Supplies used in testing $ 45 $ 81 Systems development $ 720 $ 900 Warranty repairs $ 3,780 $ 1,620 Net cost of scrap $ 630 $ 1,170 Product testing $ 900 $ 1,800 Product recalls $ 3,150 $ 900 Disposal of defective products $ 810 $ 1,080 Sales have been flat over the past few years, at $90,000,000 per year. A great deal of money has been spent in the effort to upgrade quality, and management is anxious to see whether or not the effort has been effective. Required: 1. Prepare a quality cost report that contains data for both this year and last year. (Enter amount values in thousands. Round your percentage answers to 2 decimal places (i.e 0.1234 should be entered as 12.34).)

Answer 1

Quality cost report	This year		Last year
Preventive costs
Quality Engineering	765	6.12%	450	3.14%
Statistical Process Control	225	1.80%	-	0.00%
Systems Development	900	7.19%	720	5.03%
Total Preventive costs	1,890	15.11%	1,170	8.18%
Appraisal Costs
Inspection	909	7.27%	720	5.03%
Depreciation of test equipment	270	2.16%	675	4.72%
Supplies used in Testing	81	0.65%	45	0.31%
Product Testing	1,800	14.39%	900	6.29%
Total Appraisal Costs	3,060	24.46%	2,340	16.35%
Internal Failure Costs
Rework Labor	1,530	12.23%	1,080	7.55%
Net cost of scrap	1,170	9.35%	630	4.40%
Disposal of defective products	1,080	8.63%	810	5.66%
Total Internal Failure Costs	3,780	30.22%	2,520	17.61%
External Failure Cost
Warranty Repairs	1,620	12.95%	3,780	26.42%
Product Recalls	900	7.19%	3,150	22.01%
Cost of field Servicing	1,260	10.07%	1,350	9.43%
Total External Failure Cost	3,780	30.22%	8,280	57.86%
Total Quality Cost	12,510	100.00%	14,310	100.00%