Cornerstone Exercise 14.2 (Algorithmic) Interim Quality Performance Report Davis
ID: 2539546 • Letter: C
Question
Cornerstone Exercise 14.2 (Algorithmic)
Interim Quality Performance Report
Davis, Inc., had the following quality costs for the years ended December 31, 2014 and 2015:
At the end of 2014, management decided to increase its investment in control costs by 50 percent for each category’s items with the expectation that failure costs would decrease by 20 percent for each item of the failure categories. Sales were $12,000,000 for both 2014 and 2015.
Required:
1. Calculate the budgeted costs for 2015.
$ ___
Prepare an interim quality performance report.
Note: Enter all answers as positive amounts. If there is no variance enter "0" for your answer. If the budget variance amount is unfavorable enter "U" in the last column of the table, enter"F" if it is favorable, or NA if there is no change. Round percentage answers to two decimal places. For example, 5.789% would be entered as "5.79".
Davis, Inc.
Interim Standard Performance Report: Quality Costs
For the Year Ended December 31, 2015
Actual Costs
Budgeted Costs
Variance
U, F or NA
Prevention costs:
Process acceptance
Product acceptance
Quality audits
Recalls
Retesting
Rework
Warranty
Correct 14 of Item 2
Correct 15 of Item 2
Correct 16 of Item 2
Correct 17 of Item 2
Correct 18 of Item 2
Process acceptance
Product acceptance
Recalls
Retesting
Rework
Vendor certification
Warranty
Correct 19 of Item 2
Correct 20 of Item 2
Correct 21 of Item 2
Correct 22 of Item 2
Correct 23 of Item 2
Total prevention costs
Correct 25 of Item 2
Correct 26 of Item 2
Correct 27 of Item 2
Correct 28 of Item 2
Appraisal costs:
Product acceptance
Quality audits
Recalls
Retesting
Rework
Vendor certification
Warranty
Correct 34 of Item 2
Correct 35 of Item 2
Correct 36 of Item 2
Correct 37 of Item 2
Correct 38 of Item 2
Process acceptance
Quality audits
Recalls
Retesting
Rework
Vendor certification
Warranty
Correct 39 of Item 2
Correct 40 of Item 2
Correct 41 of Item 2
Correct 42 of Item 2
Correct 43 of Item 2
Total appraisal costs
Correct 45 of Item 2
Correct 46 of Item 2
Correct 47 of Item 2
Correct 48 of Item 2
Internal failure costs:
Process acceptance
Product acceptance
Quality audits
Recalls
Retesting
Vendor certification
Warranty
Correct 54 of Item 2
Correct 55 of Item 2
Correct 56 of Item 2
Correct 57 of Item 2
Correct 58 of Item 2
Process acceptance
Product acceptance
Quality audits
Recalls
Rework
Vendor certification
Warranty
Correct 59 of Item 2
Correct 60 of Item 2
Correct 61 of Item 2
Correct 62 of Item 2
Correct 63 of Item 2
Total internal failure costs
Correct 65 of Item 2
Correct 66 of Item 2
Correct 67 of Item 2
Correct 68 of Item 2
External failure costs:
Process acceptance
Product acceptance
Quality audits
Recalls
Retesting
Rework
Vendor certification
Correct 74 of Item 2
Correct 75 of Item 2
Correct 76 of Item 2
Correct 77 of Item 2
Correct 78 of Item 2
Process acceptance
Product acceptance
Quality audits
Retesting
Rework
Vendor certification
Warranty
Correct 79 of Item 2
Correct 80 of Item 2
Correct 81 of Item 2
Correct 82 of Item 2
Correct 83 of Item 2
Total external failure costs
Correct 85 of Item 2
Correct 86 of Item 2
Correct 87 of Item 2
Correct 88 of Item 2
Total quality costs
Correct 90 of Item 2
Correct 91 of Item 2
Correct 92 of Item 2
Correct 93 of Item 2
Percentage of sales
Correct 95 of Item 2
Correct 96 of Item 2
Correct 97 of Item 2
2014 2015 Prevention costs: Quality audits $66,000 $99,000 Vendor certification 118,500 177,750 Appraisal costs: Product acceptance $94,000 $141,000 Process acceptance 87,000 117,500 Internal failure costs: Retesting $96,000 $88,000 Rework 173,000 214,000 External failure costs: Recalls $145,000 $116,000 Warranty 330,000 298,000Explanation / Answer
Solution:
Davis, Inc.
Interim Standard Performance Report: Quality Costs
For the Year Ended December 31, 2015
Actual Budgeted
Costs Costs Variance
Prevention costs:
Quality audits...................................... $ 99,000 $ 99,000a $ 0
Vendor certification............................ 177,750 177,750a 0
Total prevention costs..................... $ 276,750 $ 276,750 $ 0
Appraisal costs:
Product acceptance............................. $ 141,000 $ 141,000a $ 0
Process acceptance.............................. 117,500 130,500a 13,000 F
Total appraisal costs........................ $ 258,500 $ 271,500 $ 13,000 F
Internal failure costs:
Retesting............................................. $ 88,000 $ 70,400b $ 17,600 U
Rework................................................ 214,000 171,200b 42800 U
Total internal failure costs............... $ 302,000 $ 241,600 $ 60,400 U
External failure costs:
Recalls................................................. $ 116,000 $ 116,000b $ 0
Warranty............................................. 298,000 264,000b 34,000 U
Total external failure costs.............. $ 414,000 $ 380,000 $ 34,000 U
Total quality costs.................................... $1,251,250 $ 1,169,850 $ 81,400 U
Percentage of sales.................................. 10.43% 9.75% 0.68% U
a2014 actual control cost × 1.50 (e.g., Quality audits = $66,000 × 1.50 = $99,000)
b2014 actual failure cost × 0.80 (e.g., Retesting = $96,000 × 0.8 = $76,800)