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 21,000 Inspection costs 15,000 Scrap and rework 8,600 Product returns due to defects 6,000 Depreciation expense 10,000 Machine maintenance expense 3,000 Wage expense 35,000 Machine breakdown costs 4,000 Estimated lost sales due to poor quality 5,000

Answer 1

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