30. Award: 10.00 points Problems? Adjust credit for all students.

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 This
 
Year  Year 
Inspection $ 750 $ 900
Quality engineering $ 420 $ 570
Depreciation of test equipment $ 210 $ 240
Rework labor $ 1,050 $ 1,500
Statistical process control $ 0 $ 180
Cost of field servicing $ 1,200 $ 900
Supplies used in testing $ 30 $ 60
Systems development $ 480 $ 750
Warranty repairs $ 3,600 $ 1,050
Net cost of scrap $ 630 $ 1,125
Product testing $ 810 $ 1,200
Product recalls $ 2,100 $ 750
Disposal of defective products $ 720 $ 975

 
Sales have been flat over the past few years, at $75,000,000 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).)
 

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 Florex Company
Quality Cost Report
Last Year This Year
Amount (in  Percent of  Amount (in  Percent of 
thousands) Sales thousands) Sales
Prevention costs:
Quality engineering   $ 420 0.56 570 0.76 %
Systems development   480 0.64 750 1.00
Statistical process control   180 0.24
Total prevention costs F 900 F 1.20 F 1,500 F 2.00
Appraisal costs
Inspection   750 1.00 900 1.20
Product testing   810 1.08 1,200 1.60
Supplies used in testing   30 0.04 60 0.08
Depreciation of test equipment   210 0.28 240 0.32
Total appraisal costs F 1,800 F 2.40 F 2,400 F 3.20
Internal failure costs:
Net cost of scrap   630 0.84 1,125 1.50
Rework labor   1,050 1.40 1,500 2.00
Disposal of defective products   720 0.96 975 1.30
Total internal failure costs F 2,400 F 3.20 F 3,600 F 4.80
External failure costs:
Cost of field servicing   1,200 1.60 900 1.20
Warranty repairs   3,600 4.80 1,050 1.40
Product recalls   2,100 2.80 750 1.00
Total external failure costs F 6,900 F 9.20 F 2,700 F 3.60
Total quality cost $ 12,000 16.00 $ 10,200 13.60

 
 
Explanation:

No further explanation details are available for this problem.

References

Worksheet Learning Objective: 01­
07 (Appendix 1A)
Identify the four types of
quality costs and explain
how they interact.

Difficulty: 1 Easy Learning Objective: 01­
08 (Appendix 1A)
Prepare and interpret a
quality cost report.

 
 

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