Question

Charles Berkle is the manager of Nogain Manufacturing and is interested in doing a cost of quality analysis. The following cost and revenue data are available for the most recent year ended December 31.

Sales revenue	$	250,000
Cost of goods sold		140,000
Warranty expense		18,000
Inspection costs		10,000
Scrap and rework		8,900
Product returns due to defects		6,000
Depreciation expense		10,000
Machine maintenance expense		1,800
Wage expense		35,000
Machine breakdown costs		4,000
Estimated lost sales due to poor quality		5,000

a. Classify each of these costs into the four quality cost categories and prepare a cost of quality report for Nogain.

b. What percentage of sales revenue is being spent on prevention and appraisal activities?

c. What percentage of sales revenue is being spent on internal and external failure costs?

Classify each of the above costs into the four quality cost categories and prepare a cost of quality report for Nogain.

	NOGAIN MANUFACTURING Quality Cost Report For the Current Year Ended December 31 Prevention costs: $0 Appraisal costs: $0 Internal failure costs: $0 External failure costs: $0 Total quality costs $0

What percentage of sales revenue is being spent on prevention and appraisal activities? (Round your answer to 1 decimal place.)

	Costs as a Percentage of Sales %

What percentage of sales revenue is being spent on internal and external failure costs? (Round your answer to 1 decimal place.)

	Costs as a Percentage of Sales %

Answer 1

Prevention costs:
Machine maintenance expense		$ 1,800.00
Appraisal costs
Inspection costs		$10,000.00
Internal failure costs:
Scrap and rework	$ 8,900.00
Machine breakdown costs	$ 4,000.00	$              12,900.00
External failure costs:
Warranty expense	$18,000.00
Product returns due to defects	$ 6,000.00
Estimated lost sales due to poor quality	$ 5,000.00	$              29,000.00
Total Quality Cost		$              53,700.00
b. What percentage of sales revenue is being spent on prevention and appraisal activities?
= (Prevention Cost+Appraisal Cost)/Sales *100
= ($1800+$10000)/250000*100
4.72%
b. What percentage of sales revenue is being spent on internal & external failure cost?
= ( internalfailure cost + external failure cost)/Sales *100
= ($12900+$29000)/250000*100
16.76%