A firm uses only debt and equity in its capital structure. The firm's weight of equity is 70 percent. The firm's cost of equity
1 answer:
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Explanation:
a. The classification is shown below:
Prevention cost: This cost incurred so that the faults, or defects could be minimized as compare to before. It includes the machine maintenance expense i.e $3,000
Appraisal cost: This cost incurred specially to meet the quality of the customer expectations. It is a quality control cost. It includes the inspection cost of $15,000
Internal failure: This cost is occurred before delivery the product from the factory. It includes Scrap and rework of $8,600 and Machine breakdown cost of $4,000
External failure: This cost is occurred after delivery the product. It includes the warranty expense of $21,000, product return due to defects of $6,000 and Estimated lost sales due to poor quality of $5,000
b. Now the percentage is
= (Prevention and appraisal cost) ÷ (Sales revenue) × 100
= ($3,000 + $15,000) ÷ ($250,000) × 100
= 7.2%
c. The percentage is
= (Internal and external failures) ÷ (Sales revenue) × 100
= ($8,600 + $4,000 + $21,000 + $6,000 + $5,000) ÷ ($250,000) × 100
= 17.84%
Below is the attachment for cost of quality report
