Quality costs The accounting system for Dolment Co. reflected the following quality costs for Year 1 and Year 2: Customer refunds for poor product quality Fitting machines for mistake-proof operations Supply chain management activities Waste disposal Quality training Litigation claims for product defects Year 1 Year 2 $37,000 $29,000 9,400 11,800 9,000 10,000 44,000 36,000 26,000 30,000 81,000 64,000 a. Which of these are costs of compliance, and which are costs of noncompliance? b. Calculate the percentage change in each cost and for each category. Note: Round each percentage change to the nearest whole percentage. Note: Indicate a decrease with a negative sign. Customer refunds for poor product quality Fitting machines for mistake-proof operations Supply chain management activities Waste disposal Quality training Litigation claims for product defects Compliance cost category Noncompliance cost category Year 1 Year 2 Percentage Change $37,000 $29,000 % 9,400 11,800 % ÷ 9,000 10,000 % 44,000 36,000 % 26,000 30,000 % 81,000 64,000 % % %

Subject: accounting

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Schedule of Activity Costs Quality Control Activities Product testing Assessing vendor quality Recalls Rework Scrap disposal Product design Training machine operators Warranty work Process audits From the provided schedule of activity costs, determine the (a) prevention and (b) appraisal costs. a. Prevention costs $ Activity Cost $55,000 26,000 18,000 29,000 8,000 30,000 46,000 12,000 22,000 b. Appraisal costs $

Galaviz Company's quality cost report is to be based on the following data: Net cost of spoilage Test and inspection of in-process goods Supplies used in testing and inspection Quality engineering Downtime caused by quality problems Systems development Supervision of testing and inspection activities Cost of field servicing and handling complaints Lost sales due to poor quality Required: Complete the following Quality Cost Report. $ 103,000 $ 49,000 $ 111,000 $ 117,000 $ 75,000 $ 30,000 $ 77,000 $ 66,000 $ 42,000 Galaviz Company Quality Cost Report Prevention costs Total prevention cost Appraisal costs

Schedule of Activity Costs Quality Control Activities Product testing Assessing vendor quality Recalls Rework Scrap disposal Product design Training machine operators Warranty work Process audits From the provided schedule of activity costs, determine the (a) value-added and (b) non-value-added costs. 2 a. Value-added costs $ Activity Cost $55,000 26,000 18,000 29,000 8,000 30,000 46,000 12,000 22,000 b. Non-value-added costs $

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Pareto chart and cost of quality report for a manufacturing company The president of Mission Inc. has been concerned about the growth in costs over the last several years. The president asked the controller to perform an activity analysis to gain a better insight into these costs. The activity analysis revealed the following: The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap. Instructions 1. Prepare a Pareto chart of the company activities. 2. Classify the activities into prevention, appraisal, internal failure, external failure, and not costs of quality (producing product). Classify the activities into value-added and non-value-added activities. 3. Use the activity cost information to determine the percentages of total costs that are prevention, appraisal, internal failure, external failure, and not costs of quality. 4. Determine the percentages of total costs that are value-added and non-value-added. 5. Interpret the information.

In 20X1, Don Blackburn, president of Price Electronics, received a report indicating that quality costs were 31% of sales. Faced with increasing pressures from imported goods. Don resolved to take measures to improve the overall quality of the companys products. After hiring a consultant in 20X1, the company began an aggressive program of total quality control. At the end of 20X5, Don requested an analysis of the progress the company had made in reducing and controlling quality costs. The accounting department assembled the following data: Required: 1. Compute the quality costs as a percentage of sales by category and in total for each year. 2. Prepare a multiple-year trend graph for quality costs, both by total costs and by category. Using the graph, assess the progress made in reducing and controlling quality costs. Does the graph provide evidence that quality has improved? Explain. 3. Using the 20X1 quality cost relationships (assume all costs are variable), calculate the quality costs that would have prevailed in 20X4. By how much did profits increase in 20X4 because of the quality improvement program? Repeat for 20X5.

Kathy Shorts, president of Oliver Company, was concerned with the trend in sales and profitability. The company had been losing customers at an alarming rate. Furthermore, the company was barely breaking even. Investigation revealed that poor quality was at the root of the problem. At the end of 20x5, Kathy decided to begin a quality improvement program. As a first step, she identified the following costs in the accounting records as quality related: Required: 1. Prepare a quality cost report by quality cost category. 2. Calculate the relative distribution percentages for each quality cost category. Comment on the distribution. 3. Using the Taguchi loss function, an average loss per unit is computed to be 15 per unit. What are the hidden costs of external failure? How does this affect the relative distribution? 4. Shortss quality manager decided not to bother with the hidden costs. What do you think was his reasoning? Any efforts to reduce measured external failure costs will also reduce the hidden costs. Do you agree or disagree? Explain.