Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
6th Edition
ISBN: 9780134486857
Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 19, Problem 30E
Darrel & Co. makes electronic components. Chris Darrel, the president, recently instructed Vice President Jim Bruegger to develop a total quality control program. “If we don’t at least match the quality improvements our competitors are making,” he told Bruegger, “we’ll soon be out of business.” Bruegger began by listing various “costs of quality” that Darrel incurs. The first six items that came to mind were:
- a. Costs incurred by Darrel customer representatives traveling to customer sites to repair defective products, $13,000.
- b. Lost profits from lost sales due to reputation for less-than-perfect products, $35,000.
- c. Costs of inspecting components in one of Darrel’s production processes, $40,000.
- d. Salaries of engineers who are redesigning components to withstand electrical overloads, $65,000.
- e. Costs of reworking defective components after discovery by company inspectors, $50,000.
- f. Costs of electronic components returned by customers, $70,000.
Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost. Then determine the total cost of quality by category.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Classifying quality costs
Darrel & Co. makes electronic components. Chris Darrel, the president, recently instructed Vice President Jim Bruegger to develop a total quality control program. “If we don’t at least match the quality improvements our competitors are making,” he told Bruegger, “we’ll soon be out of business.” Bruegger began by listing various “costs of quality” that Darrel incurs. The first six items that came to mind were:
Costs incurred by Darrel customer representatives traveling to customer sites to repair defective products, $13,000.
Lost profits from lost sales due to reputation for less-than-perfect products, $35,000.
Costs of inspecting components in one of Darrel’s production processes, $40,000
Salaries of engineers who are redesigning components to withstand electrical overloads, $65,000.
Costs of reworking defective components after discovery by company inspectors, $50,000.
Costs of electronic components returned by customers, $70,000.
Classify each item…
Mercury, Incorporated, produces cell phones at its plant in Texas. A year ago, a consumer survey ranked the company's cell phones
low in product quality. Shocked by this result, Jorge Gomez, Mercury's president, set up a task force to implement a formal quality
improvement program. Included on this task force were representatives from the Engineering, Marketing, Customer Service,
Production, and Accounting departments. After working together for a year, the task force prepared the quality cost report shown
below:
Prevention costs:
Machine maintenance
Training suppliers
Quality circles
Total prevention cost
Appraisal costs:
Incoming inspection
Final testing
Total appraisal cost
Internal failure costs:
Rework
Scrap
Total internal failure cost
External failure costs:
Warranty repairs
Customer returns
Mercury, Incorporated
Quality Cost Report
(in thousands)
Total external failure cost
Total quality cost
Total production cost
Prevention costs:
Machine maintenance
Training suppliers
Quality…
ABC Corporation has recently completed a project to reduce total production costs by 5%. Net
income has risen as a result, but the stock price has suffered from recent public disclosures about
faulty products. The vice president for manufacturing and the controller are concerned that their
successful cost-cutting efforts have resulted in lower market valuation. They are beginning to
understand that product quality has a cost component and they have asked you, a CMA, to explain
the concept of “cost of quality'" to them.
A. Define, categorize, and give examples of the "cost of quality."
B. What is value chain analysis and how could this impact the company's evaluation of costs?
C. What other business process improvement tools may benefit the company?
Chapter 19 Solutions
Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
Ch. 19 - The Santos Shirt Company manufactures shirts in...Ch. 19 - Prob. 2TICh. 19 - Prob. 3TICh. 19 - Prob. 4TICh. 19 - Prob. 5TICh. 19 - Prob. 6TICh. 19 - Prob. 7TICh. 19 - Prob. 8TICh. 19 - Prob. 9TICh. 19 - Prob. 10TI
Ch. 19 - Prob. 11TICh. 19 - Prob. 12TICh. 19 - Which statement is false? a. Using a single...Ch. 19 - Compute It uses activity-based costing. Two of...Ch. 19 - Compute It uses activity-based costing. Two of...Ch. 19 - Compute It uses activity-based costing. Two of...Ch. 19 - Compute It can use ABC information for what...Ch. 19 - Prob. 6QCCh. 19 - Companies enjoy many benefits from using JIT....Ch. 19 - Which account is not used in JIT costing? a....Ch. 19 - The cost of lost future sales after a customer...Ch. 19 - Spending on testing a product before shipment to...Ch. 19 - What is the formula to compute the predetermined...Ch. 19 - How is the predetermined overhead allocation rate...Ch. 19 - Describe how a single plantwide overhead...Ch. 19 - Why is using a single plantwide overhead...Ch. 19 - Why is the use of departmental overhead allocation...Ch. 19 - What is activity-based management? How is it...Ch. 19 - How many cost pools are in an activity-based...Ch. 19 - What are the four steps to developing an...Ch. 19 - Why is ABC usually considered more accurate than...Ch. 19 - List two ways managers can use ABM to make...Ch. 19 - Define value engineering. How is it used to...Ch. 19 - Explain the difference between target price and...Ch. 19 - How can ABM be used by service companies?Ch. 19 - What is a just-in-time management system?Ch. 19 - Explain how the work cell manufacturing layout...Ch. 19 - What are the inventory accounts used in JIT...Ch. 19 - How is the Conversion Costs account used in JIT...Ch. 19 - Prob. 18RQCh. 19 - Which accounts are adjusted for the underallocated...Ch. 19 - Prob. 20RQCh. 19 - Prob. 21RQCh. 19 - Prevention is much cheaper than external failure....Ch. 19 - What are quality improvement programs?Ch. 19 - Prob. 24RQCh. 19 - Prob. 1SECh. 19 - The Oakman (Company (see Short Exercise S19-1) has...Ch. 19 - Activity-based costing requires four steps. List...Ch. 19 - Prob. 4SECh. 19 - Darby Corp. is considering the use of...Ch. 19 - The following information is provided for Orbit...Ch. 19 - Jaunkas Corp. manufactures mid-fi and hi-fi stereo...Ch. 19 - Spectrum Corp. makes two products: C and D. The...Ch. 19 - Refer to Short Exercise S19-8. Spectrum Corp....Ch. 19 - Haworth Company is a management consulting firm....Ch. 19 - Refer to Short Exercise S19-10. Haworth desires a...Ch. 19 - Prob. 12SECh. 19 - Prime Products uses a JIT management system to...Ch. 19 - Stegall, Inc. manufactures motor scooters. For...Ch. 19 - Koehler makes handheld calculators in two models:...Ch. 19 - Koehler (see Exercise E19-15) makes handheld...Ch. 19 - Koehler (see Exercise E19-15 and Exercise E19-16)...Ch. 19 - Franklin, Inc. uses activity-based costing to...Ch. 19 - Turbo Champs Corp. uses activity-based costing to...Ch. 19 - Eason Company manufactures wheel rims. The...Ch. 19 - Refer to Exercise E19-20. For 2019, Easons...Ch. 19 - Refer to Exercises E19-20 and E19-21. Controller...Ch. 19 - Treat Dog Collars uses activity-based costing....Ch. 19 - Western, Inc. is a technology consulting firm...Ch. 19 - Refer to Exercise E19-24. The president of Western...Ch. 19 - Prob. 26ECh. 19 - Refer to Exercise E19-26. Western desires a 20%...Ch. 19 - Lally, Inc. produces universal remote controls....Ch. 19 - Prob. 29ECh. 19 - Darrel Co. makes electronic components. Chris...Ch. 19 - Prob. 31ECh. 19 - Prob. 32ECh. 19 - Willitte Pharmaceuticals manufactures an...Ch. 19 - The Alright Manufacturing Company in Rochester,...Ch. 19 - Oscar, Inc. manufactures bookcases and uses an...Ch. 19 - Blanchette Plant Service completed a special...Ch. 19 - Low Range produces fleece jackets. The company...Ch. 19 - Stella, Inc. is using a costs-of-quality approach...Ch. 19 - Harcourt Pharmaceuticals manufactures an...Ch. 19 - The Alexander Manufacturing Company in Rochester,...Ch. 19 - Martin, Inc. manufactures bookcases and uses an...Ch. 19 - Rennie Plant Service completed a special...Ch. 19 - High Mountain produces fleece jackets. The company...Ch. 19 - Roxi, Inc. is using a costs-of-quality approach to...Ch. 19 - Download an Excel template for this problem online...Ch. 19 - This problem continues the Piedmont Computer...Ch. 19 - Prob. 1TIATCCh. 19 - Harris Systems specializes in servers for...Ch. 19 - Harris Systems has decided to adopt ABC. To remain...Ch. 19 - Prob. 1EICh. 19 - Anu Ghai was a new production analyst at RHI,...
Additional Business Textbook Solutions
Find more solutions based on key concepts
Using the information from Problem 1-2B and the inventory information for the Best Bikes below, complete the re...
Managerial Accounting
Calculating certain information using the direct method (Learning Objective 4) 20-25 min. Trudeaus Marine, Inc....
Financial Accounting, Student Value Edition (5th Edition)
Analysis of inventory errors A2 Hallam Company’s financial statements show the following. The company recently ...
FINANCIAL ACCT.FUND.(LOOSELEAF)
List five asset accounts, three liability accounts, and five expense accounts included in the acquisition and p...
Auditing and Assurance Services (16th Edition)
What are assets limited as to use and how do they differ from restricted assets?
Accounting for Governmental & Nonprofit Entities
Interest-bearing notes payable with year-end adjustments P1 Keesha Co. borrows $200,000 cash on November 1, 201...
Financial Accounting: Information for Decisions
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- 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.arrow_forwardAt the beginning of the last quarter of 20x1, Youngston, Inc., a consumer products firm, hired Maria Carrillo to take over one of its divisions. The division manufactured small home appliances and was struggling to survive in a very competitive market. Maria immediately requested a projected income statement for 20x1. In response, the controller provided the following statement: After some investigation, Maria soon realized that the products being produced had a serious problem with quality. She once again requested a special study by the controllers office to supply a report on the level of quality costs. By the middle of November, Maria received the following report from the controller: Maria was surprised at the level of quality costs. They represented 30 percent of sales, which was certainly excessive. She knew that the division had to produce high-quality products to survive. The number of defective units produced needed to be reduced dramatically. Thus, Maria decided to pursue a quality-driven turnaround strategy. Revenue growth and cost reduction could both be achieved if quality could be improved. By growing revenues and decreasing costs, profitability could be increased. After meeting with the managers of production, marketing, purchasing, and human resources, Maria made the following decisions, effective immediately (end of November 20x1): a. More will be invested in employee training. Workers will be trained to detect quality problems and empowered to make improvements. Workers will be allowed a bonus of 10 percent of any cost savings produced by their suggested improvements. b. Two design engineers will be hired immediately, with expectations of hiring one or two more within a year. These engineers will be in charge of redesigning processes and products with the objective of improving quality. They will also be given the responsibility of working with selected suppliers to help improve the quality of their products and processes. Design engineers were considered a strategic necessity. c. Implement a new process: evaluation and selection of suppliers. This new process has the objective of selecting a group of suppliers that are willing and capable of providing nondefective components. d. Effective immediately, the division will begin inspecting purchased components. According to production, many of the quality problems are caused by defective components purchased from outside suppliers. Incoming inspection is viewed as a transitional activity. Once the division has developed a group of suppliers capable of delivering nondefective components, this activity will be eliminated. e. Within three years, the goal is to produce products with a defect rate less than 0.10 percent. By reducing the defect rate to this level, marketing is confident that market share will increase by at least 50 percent (as a consequence of increased customer satisfaction). Products with better quality will help establish an improved product image and reputation, allowing the division to capture new customers and increase market share. f. Accounting will be given the charge to install a quality information reporting system. Daily reports on operational quality data (e.g., percentage of defective units), weekly updates of trend graphs (posted throughout the division), and quarterly cost reports are the types of information required. g. To help direct the improvements in quality activities, kaizen costing is to be implemented. For example, for the year 20x1, a kaizen standard of 6 percent of the selling price per unit was set for rework costs, a 25 percent reduction from the current actual cost. To ensure that the quality improvements were directed and translated into concrete financial outcomes, Maria also began to implement a Balanced Scorecard for the division. By the end of 20x2, progress was being made. Sales had increased to 26,000,000, and the kaizen improvements were meeting or beating expectations. For example, rework costs had dropped to 1,500,000. At the end of 20x3, two years after the turnaround quality strategy was implemented, Maria received the following quality cost report: Maria also received an income statement for 20x3: Maria was pleased with the outcomes. Revenues had grown, and costs had been reduced by at least as much as she had projected for the two-year period. Growth next year should be even greater as she was beginning to observe a favorable effect from the higher-quality products. Also, further quality cost reductions should materialize as incoming inspections were showing much higher-quality purchased components. Required: 1. Identify the strategic objectives, classified by the Balanced Scorecard perspective. Next, suggest measures for each objective. 2. Using the results from Requirement 1, describe Marias strategy using a series of if-then statements. Next, prepare a strategy map. 3. Explain how you would evaluate the success of the quality-driven turnaround strategy. What additional information would you like to have for this evaluation? 4. Explain why Maria felt that the Balanced Scorecard would increase the likelihood that the turnaround strategy would actually produce good financial outcomes. 5. Advise Maria on how to encourage her employees to align their actions and behavior with the turnaround strategy.arrow_forwardSKE Corporation manufactures large kitchen appliances. The following represents financial information for two years: Mr. Cheung is also reviewing the quality of various production process. Recently several competitors have introduced similar prototype chips with much higher quality and causing SKE's sales to decline. Mr. Cheung has embarked an intensive campaign to strengthen its quality control at the beginning of 2023. The costs relating to quality control were complied for 2021 and the full year of 2022. The related costs are shown below 2021 2022 Process Inspection 60,000 52,800 Scrap 60,200 57,600 Quality Training 440,000 610,000 Warranty repairs 150,000 140,000 Testing equipment 230,000 230,000 Resolving customer complaints 108,400 89,000 Rework 390,000 544,000 Preventive maintenance 304,000 440,000 Material Inspection 150,000 210,000 Field Testing 400,000 300,000 Total costs $2,292,600 $2,673,400 Required: a. Prepare a cost of quality (COQ) report for 2021 and 2022, calculate…arrow_forward
- In 2011, Milton Thayne, president of Carbondale Electronics, received a report indicating that quality costs were 31 percent of sales. Faced with increasing pressures from imported goods, Milton resolved to take measures to improve the overall quality of the companys products. After hiring a consultant in 20x0, the company began an aggressive program of total quality control. At the end of 20x5, Milton 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.arrow_forwardRecently, Ulrich Company received a report from an external consulting group on its quality costs. The consultants reported that the companys quality costs total about 21 percent of its sales revenues. Somewhat shocked by the magnitude of the costs, Rob Rustin, president of Ulrich Company, decided to launch a major quality improvement program. For the coming year, management decided to reduce quality costs to 17 percent of sales revenues. Although the amount of reduction was ambitious, most company officials believed that the goal could be realized. To improve the monitoring of the quality improvement program, Rob directed Pamela Golding, the controller, to prepare monthly performance reports comparing budgeted and actual quality costs. Budgeted costs and sales for the first two months of the year are as follows: The following actual sales and actual quality costs were reported for January: Required: 1. Reorganize the monthly budgets so that quality costs are grouped in one of four categories: appraisal, prevention, internal failure, or external failure. (Essentially, prepare a budgeted cost of quality report.) Also, identify each cost as variable (V) or fixed (F). (Assume that no costs are mixed.) 2. Prepare a performance report for January that compares actual costs with budgeted costs. Comment on the companys progress in improving quality and reducing its quality costs.arrow_forwardEthics and quality. Weston Corporation manufactures auto parts for two leading Japanese automakers. Nancy Evans is the management accountant for one of Weston’s largest manufacturing plants. The plant’s general manager, Chris Sheldon, has just returned from a meeting at corporate headquarters where quality expectations were outlined for 2017. Chris calls Nancy into his office to relay the corporate quality objective that total quality costs will not exceed 10% of total revenues by plant under any circumstances. Chris asks Nancy to provide him with a list of options for meeting corporate headquarters’ quality objective. The plant’s initial budgeted revenues and quality costs for 2017 are as follows: Revenue 5,100,000 Quality costs: Testing of purchased materials 48,000 Quality control training for production staff 7,500 Warranty repairs 123,000 Quality design engineering 72,000 Customer support 55,500 Materials scrap 18,000 Product inspection 153,000 Engineering redesign of failed parts…arrow_forward
- Ethics and quality. Weston Corporation manufactures auto parts for two leading Japanese automakers. Nancy Evans is the management accountant for one of Weston’s largest manufacturing plants. The plant’s general manager, Chris Sheldon, has just returned from a meeting at corporate headquarters where quality expectations were outlined for 2017. Chris calls Nancy into his office to relay the corporate quality objective that total quality costs will not exceed 10% of total revenues by plant under any circumstances. Chris asks Nancy to provide him with a list of options for meeting corporate headquarters’ quality objective. The plant’s initial budgeted revenues and quality costs for 2017 are as follows: Revenue 5,100,000 Quality costs: Testing of purchased materials 48,000 Quality control training for production staff 7,500 Warranty repairs 123,000 Quality design engineering 72,000 Customer support 55,500 Materials scrap 18,000 Product inspection 153,000 Engineering redesign of failed parts…arrow_forwardEthics and quality. Weston Corporation manufactures auto parts for two leading Japanese automakers. Nancy Evans is the management accountant for one of Weston’s largest manufacturing plants. The plant’s general manager, Chris Sheldon, has just returned from a meeting at corporate headquarters where quality expectations were outlined for 2017. Chris calls Nancy into his office to relay the corporate quality objective that total quality costs will not exceed 10% of total revenues by plant under any circumstances. Chris asks Nancy to provide him with a list of options for meeting corporate headquarters’ quality objective. The plant’s initial budgeted revenues and quality costs for 2017 are as follows: Revenue 5,100,000 Quality costs: Testing of purchased materials 48,000 Quality control training for production staff 7,500 Warranty repairs 123,000 Quality design engineering 72,000 Customer support 55,500 Materials scrap 18,000 Product inspection 153,000 Engineering redesign of failed parts…arrow_forwardAlexandria Ltd. manufactures high-quality pens. For many years the company manufactured only one type of pen (namely, ballpoint pens) but last year the company also began to manufacture fountain pens. The decision to begin manufacturing fountain pens was taken only after the company’s marketing manager confirmed that there was a significant niche market for fountain pens and the company’s cost accountant estimated that the cost of production for such pens would be much less than the selling price predicted by the marketing manager. When the fountain pen was introduced, sales (in terms of both quantity and price) were higher than expected. Nevertheless the overall profits of Alexandria Ltd. have declined steadily. As a result, the cost accountant decided that he should re-examine his estimate of the cost of producing the fountain pen, with particular reference to overhead costs. In his original analysis, he allocated all manufacturing overhead costs to products in proportion to direct…arrow_forward
- Advanced Coding is a software development company that sells specialized practice management software to large professional services firms. Management has decided to analyze certain costs related to sales to determine per-customer profitability and to plan for future sales efforts. These costs include sales commissions and overhead related to the corporate jet expenses. They have determined that $200,000 of overhead costs related to the corporate jet should be assigned to individual customers. Sales representatives are paid a commission of 5% on Gross Profit (sales less costs to develop the software). In relation to overhead costs, the sales staff used the corporate jet at a cost of $1,000 per hour for trips to customers as follows: Customer #1: 50 hours Customer #2: 43 hours Customer #3: 15 hours Customer #4: 8 hours Customer #5: 10 hours Gross profit per customer is as follows: Customer #1: $340,000 Customer #2: $240,000 Customer #3: $60,000 Customer #4: $80,000 Customer #5: $60,000…arrow_forwardDana Wise, president of Tidwell Company, recently returned from a conference on quality and productivity. At the conference, he was told that many firms have quality costs totaling 20 to 30% of sales. The quality experts at the conference convinced him that a company could increase its profitability by improving quality. However, he was of the opinion that the quality of Tidwell Company was much less than 20% - probably more in the 4 to 6% range. However, because the potential for increasing profits was so great if he was wrong, he decided to request a preliminry estimate of the total quality costs currently being incurred. He asked his controller for a summary of quality costs, with the costs classified into four categories: prevention, appraisal, internal failure, or external failure. He also wanted the costs expressed as a percentage of both sales and profits. The controller had his staff assemble the following information from the past year, 20x1: a. Sales revenue,…arrow_forwardRUE BENNETT Company develops software for small businesses and household computers. The majority of the company's computer programmers are working on developing software that will perform relatively specialized functions in a user-friendly manner. Before the working model is released to production for the preparation of masters and additional testing, it undergoes extensive testing. As a result of this meticulous planning, various computer software packages have been developed that have proven to be very successful in the industry. RUE BENNETT Company incurred the following costs during 2020: Cost to reproduce and prepare software for sale 200,002 Amortization of capitalized software development costs from current and prior years 94,321 Expenses related to projects after technological feasibility has been established but before software is available for commercial production 151,323 Salaries and wages of programmers doing research 910,000 Expenses related…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Inspection and Quality control in Manufacturing. What is quality inspection?; Author: Educationleaves;https://www.youtube.com/watch?v=Ey4MqC7Kp7g;License: Standard youtube license