In response to intense foreign competition, Florex Company has taken steps to improve the quality of its products. A summary of its quality costs (in thousands) over the past two years is given below: Last Year Inspection Quality engineering Depreciation of test equipment Rework labor Costs (in thousands) This Year $ 1,584 $ 675 $ 225 $ 1,620 $ 225 $ 1,710 $ 1,170 $ 45 $ 81 $ 630 $ 900 $ 4,140 $ 1,260 $ 540 $ 1,530 $ 900 $ 1,440 $ 2,700 $ 990 Disposal of production defects $900 $ 900 Sales have been flat over the past few years, at $90,000,000 per year. Required: 1. Prepare a quality cost report for this year and last year. Statistical process control Cost of field servicing Supplies used in testing Systems development Warranty repairs Net cost of scrap Product testing Product recalls $ 765 $ 540 $ 630 $ 1,260 $0

In response to intense foreign competition, Florex Company has taken steps to improve the quality of its products. A summary of its quality costs (in thousands) over the past two years is given below: Last Year Inspection Quality engineering Depreciation of test equipment Rework labor Costs (in thousands) This Year $ 1,584 $ 675 $ 225 $ 1,620 $ 225 $ 1,710 $ 1,170 $ 45 $ 81 $ 630 $ 900 $ 4,140 $ 1,260 $ 540 $ 1,530 $ 900 $ 1,440 $ 2,700 $ 990 Disposal of production defects $900 $ 900 Sales have been flat over the past few years, at $90,000,000 per year. Required: 1. Prepare a quality cost report for this year and last year. Statistical process control Cost of field servicing Supplies used in testing Systems development Warranty repairs Net cost of scrap Product testing Product recalls $ 765 $ 540 $ 630 $ 1,260 $0

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter14: Quality And Environmental Cost Management

Section: Chapter Questions

Problem 16E: In 20x4, Tru-Delite Frozen Desserts, Inc., instituted a quality improvement program. At the end of...

See similar textbooks

Similar questions

In response to intense foreign competition, Florex Company has taken steps to improve the quality of its products. A summary of its quality costs (in thousands) over the past two years is given below: Inspection Quality engineering Depreciation of test equipment Rework labor Statistical process control Cost of field servicing Prevention costs: Total prevention costs Appraisal costs Total appraisal costs Internal failure costs: Total internal failure costs External failure costs: Costs (in thousands) Last Year This Year $ 630 $ 918 $ 540 $ 720 $ 180 Supplies used in testing Systems development Warranty repairs Net cost of scrap Product testing Product recalls $ 720 $ 990 $ 2,610 Disposal of production defects $ 900 Sales have been flat over the past few years, at $90,000,000 per year. Required: 1. Prepare a quality cost report for this year and last year. Note: Enter amount values in thousands. Round your percentage answers to 2 decimal places (i.e 0.1234 should be entered as 12.34).…
Muskogee Company had sales of 60,000,000 in 20x1. In 20x5, sales had increased to 75,000,000. A quality improvement program was implemented at the beginning of 20x1. Overall conformance quality was targeted for improvement. The quality costs for 20x1 and 20x5 follow. Assume any changes in quality costs are attributable to improvements in quality. Required: 1. Compute the quality cost-to-sales ratio for each year. Is this type of improvement possible? 2. Calculate the relative distribution of costs by category for 20x1. What do you think of the way costs are distributed? (A pie chart or bar graph may be of some help.) How do you think they will be distributed as the company approaches a zero-defects state? 3. Calculate the relative distribution of costs by category for 20x5. What do you think of the level and distribution of quality costs? (A pie chart or bar graph may be of some help.) Do you think further reductions are possible? 4. The quality manager for Muskogee indicated that the external failure costs reported are only the measured costs. He argued that the 20x5 external costs were much higher than those reported and that additional investment ought to be made in control costs. Discuss the validity of his viewpoint. 5. Suppose that the manager of Muskogee received a bonus equal to 10 percent of the quality cost savings each year. Do you think that gainsharing is a good or a bad idea? Discuss the risks of gainsharing.
In 20x4, Tru-Delite Frozen Desserts, Inc., instituted a quality improvement program. At the end of 20x5, the management of the corporation requested a report to show the amount saved by the measures taken during the year. The actual sales and quality costs for 20x4 and 20x5 are as follows: Tru-Delites management believes that quality costs can be reduced to 2.5 percent of sales within the next five years. At the end of 20x9, Tru-Delites sales are projected to grow to 750,000. The projected relative distribution of quality costs at the end of 20x9 is as follows: Required: 1. Profits increased by what amount due to quality improvements made in 20x5? 2. Prepare a long-range performance report that compares the quality costs incurred at the end of 20x5 with the quality cost structure expected at the end of 20x9. 3. Are the targeted costs in the year 20x9 all value-added costs? How would you interpret the variances if the targeted costs are value-added costs? 4. What would be the profit increase in 20x9 if the 2.5 percent performance standard is met in that year?
A company is spending 70,000 per year for inspecting, 60,000 per year for purchasing, and 56,000 per year for reworking products. What is a good estimate of non-value-added costs? a. 126,000 b. 70,000 c. 56,000 d. 130,000
Evans Company had total sales of 3,000,000 for fiscal 20x5. The costs of quality-related activities are given below. Required: 1. Prepare a quality cost report, classifying costs by category and expressing each category as a percentage of sales. What message does the cost report provide? 2. Prepare a bar graph and pie chart that illustrate each categorys contribution to total quality costs. Comment on the significance of the distribution. 3. What if, five years from now, quality costs are 7.5 percent of sales, with control costs being 65 percent of the total quality costs? What would your conclusion be?
Nabors Company had actual quality costs for the year ended June 30, 20x5, as given below. At the zero-defect state, Nabors expects to spend 375,000 on quality engineering, 75,000 on vendor certification, and 50,000 on packaging inspection. Assume sales to be 25,000,000. Required: 1. Prepare a long-range performance report for 20x5. What does this report tell the management of Nabors? 2. Explain why quality costs still are present for the zero-defect state. 3. What if Nabors achieves the zero-defect state reflected in the report? What are some of the implications of this achievement?
Gagnon Company reported the following sales and quality costs for the past four years. Assume that all quality costs are variable and that all changes in the quality cost ratios are due to a quality improvement program. Required: 1. Compute the quality costs for all four years. By how much did net income increase from Year 1 to Year 2 because of quality improvements? From Year 2 to Year 3? From Year 3 to Year 4? 2. The management of Gagnon Company believes it is possible to reduce quality costs to 2.5 percent of sales. Assuming sales will continue at the Year 4 level, calculate the additional profit potential facing Gagnon. Is the expectation of improving quality and reducing costs to 2.5 percent of sales realistic? Explain. 3. Assume that Gagnon produces one type of product, which is sold on a bid basis. In Years 1 and 2, the average bid was 400. In Year 1, total variable costs were 250 per unit. In Year 3, competition forced the bid to drop to 380. Compute the total contribution margin in Year 3 assuming the same quality costs as in Year 1. Now, compute the total contribution margin in Year 3 using the actual quality costs for Year 3. What is the increase in profitability resulting from the quality improvements made from Year 1 to Year 3?
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 $ 1,584 Inspection Quality engineering Depreciation of test eguipment 765 540 675 630 225 $ 1,260 $ 1,620 225 Rework labor Statistical process control Cost of field servicing $ 1,710 1,170 81 Supplies used in testing Systems development Warranty repairs Net cost of scrap Product testing Product recalls 45 630 900 1,260 24 4,140 1,530 $ 1,440 990 540 900 $ 2,700 900 Disposal of defective products 900 Sales have been flat over the past few years, at $90,000,000 per year. A great deal of money has been spent in…
In response to intense foreign competition, Florex Company has taken steps to improve the quality of its products. A summary of its quality costs (in thousands) over the past two years is given below: Inspection Quality engineering Depreciation of test equipment Rework labor Statistical process control Cost of field servicing Supplies used in testing Systems development Warranty repairs Prevention costs: Total prevention costs Appraisal costs Total appraisal costs Internal failure costs: Costs (in thousands) Last Year Total internal failure costs External failure costs: $630 $ $ $ 420 $588 1,050 $0 1,260 $ 42 $840 $ 4,200 $420 $840 $ 2,520 $630 Net cost of scrap Product testing Product recalls Disposal of production defects. Sales have been flat over the past few years, at $84,000,000 per year. Total external failure costs Total quality cost This Year $ 1,008 Required: 1. Prepare a quality cost report for this year and last year. Note: Enter amount values in thousands. Round your…
Required information [The following information applies to the questions displayed below] For many years, Leno Corporation has used a straightforward cost-plus pricing system, marking its goods up approximately 25 percent of total cost. The company has been profitable; however, it has recently lost considerable business to foreign competitors that have become very aggressive in the marketplace. These firms appear to be using target costing. An example of Leno's problem is typified by item no. 8976, which has the following unit-cost characteristics: Direct material Direct labor $110 240 Manufacturing overhead 160 Selling and administrative expenses 90 The going market price for an identical product of comparable quality is $650, which is significantly below what Leno is charging. Required: 1. Which of the two approaches could be aptly labeled price-led costing?
Easy Removals offers a complete interstate, door-to-door solution for residential and commercial removals. As the market for removal services is very competitive, Easy Removals aims to deliver services at a low cost. Its management accountant prepared the following information - the growth, price-recovery, and productivity components that explain the change in operating income from 2020 to 2021. Growth Component Price-recovery Component Productivity Component Revenue effect $ 310,000 F $ 98,000 U - Cost effect $ 210,000 U $ 32,000 U $ 128,000 F Suppose that during 2021, the market growth rate in the industry was 10%. The number of jobs billed was 400 and 500 in 2020 and 2021, respectively. Any increase in market share more than 10%, and any change in selling price, are the result of Easy Removals’ strategic actions. Required: Compute how much of the change in operating income from 2020 to 2021 is due to the: (a) industry-market-size factor; (b)…
Orange Nebula Equipment Company (ONEC) manufactures a variety of harpooning equipment. The company would like to develop a unified approach to pricing its product line for next year using cost-plus pricing but does not know what cost base should be used. Last year, ONEC earned $150,000 of profit from sales of its products and would like to earn $225,000 next year. Last year, the company incurred the following costs: Manufacturing Costs: Variable 260,000.00 Fixed 160,000.00 Selling and Administraitve: Variable 90,000.00 Fixed 180,000.00 Calculate the Markup Percentage based on a cost basis of All variable and fixed costs. (provide your answer in % form to two decimal places, i.e. 37.428% = 37.43)