Quality Cost Report Bradshaw Company reported sales of $5,000,000 in 20X1. At th

Question

Quality Cost Report

Bradshaw Company reported sales of $5,000,000 in 20X1. At the end of the fiscal year (June 30, 20X1), the following quality costs were reported:

Required:
1. Prepare a quality cost report. Round percentage to two decimals.

2. Failure costs are almost two-thirds of the total costs. This indicates that there is still ample opportunity for improving quality by investing more in prevention and appraisal activities.

3. Assuming sales of $5,000,000, by how much would profits increase if quality improves so that quality costs are only 3% of sales?
Profits would increase by $

Vendor certification $43,500 Warranty 100,000 Rework 125,000 Field testing 54,000 Quality training 56,500 Process acceptance 40,000 Scrap 75,000 Recalls 90,000 Product inspection 46,000 Returned goods 70,000

Explanation / Answer

Answer 1 A quality cost report Bradshaw Company Quality Cost Report For the Year Ended June 30, 20X1 Quality Costs Quality Cost Percentage of sales Prevention costs:      Vendor certification $43,500.00 0.87%      Quality training $56,500.00 1.13% Appraisal costs:      Field testing $54,000.00 1.08%      Process acceptance $40,000.00 0.80%      Product inspection $46,000.00 0.92% Internal failure costs:      Rework $125,000.00 2.50%      Scrap $75,000.00 1.50% External failure costs:      Warranty $100,000.00 2.00%      Recalls $90,000.00 1.80%      Returned goods $70,000.00 1.40% Total quality costs $700,000.00 14.00% Answer 2 Revised Total quality cost = Sales * percentage of sales = $50,00,000 * 3% = $1,50,000 Increase in profit = Previous total quality cost - Revised total qaulity cost = $700000 - $150000 = $5,50,000

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