Charles Berkle is the manager of Nogain Manufacturing and is interested in doing
ID: 2437091 • Letter: C
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.
a. Classify each of these costs into the four quality cost categories and prepare a cost of quality report for Nogain.
b. What percentage of sales revenue is being spent on prevention and appraisal activities?
c. What percentage of sales revenue is being spent on internal and external failure costs?
Classify each of the above costs into the four quality cost categories and prepare a cost of quality report for Nogain.
What percentage of sales revenue is being spent on prevention and appraisal activities? (Round your answer to 1 decimal place.)
What percentage of sales revenue is being spent on internal and external failure costs? (Round your answer to 1 decimal place.)
Sales revenue $ 250,000 Cost of goods sold 140,000 Warranty expense 18,000 Inspection costs 10,000 Scrap and rework 8,900 Product returns due to defects 6,000 Depreciation expense 10,000 Machine maintenance expense 1,800 Wage expense 35,000 Machine breakdown costs 4,000 Estimated lost sales due to poor quality 5,000Explanation / Answer
Prevention costs: Machine maintenance expense $ 1,800.00 Appraisal costs Inspection costs $10,000.00 Internal failure costs: Scrap and rework $ 8,900.00 Machine breakdown costs $ 4,000.00 $ 12,900.00 External failure costs: Warranty expense $18,000.00 Product returns due to defects $ 6,000.00 Estimated lost sales due to poor quality $ 5,000.00 $ 29,000.00 Total Quality Cost $ 53,700.00 b. What percentage of sales revenue is being spent on prevention and appraisal activities? = (Prevention Cost+Appraisal Cost)/Sales *100 = ($1800+$10000)/250000*100 4.72% b. What percentage of sales revenue is being spent on internal & external failure cost? = ( internalfailure cost + external failure cost)/Sales *100 = ($12900+$29000)/250000*100 16.76%