In response to intensive foreign competition, the management of Florex Company h
ID: 2420684 • Letter: I
Question
In response to intensive foreign competition, the management of Florex Company has attempted over the past year to improve the quality of its products. A statistical process control system has been installed and other steps have been taken to decrease the amount of warranty and other field costs, which have been trending upward over the past several years. Costs relating to quality and quality control over the last two years are given below:
Sales have been flat over the past few years, at $75,000,000 per year. A great deal of money has been spent in the effort to upgrade quality, and management is anxious to see whether or not the effort has been effective.
Prepare a quality cost report that contains data for both this year and last year. (Enter amount values in thousands. Round your percentage answers to 2 decimal places (i.e 0.1234 should be entered as 12.34)).
In response to intensive foreign competition, the management of Florex Company has attempted over the past year to improve the quality of its products. A statistical process control system has been installed and other steps have been taken to decrease the amount of warranty and other field costs, which have been trending upward over the past several years. Costs relating to quality and quality control over the last two years are given below:
Costs (in thousands) Last year This year inspection $630 $1,080 Quality engineering 300 675 depreciation of test equipment 345 225 rework labor 1,200 1,680 statistical process control 0 375 cost of field servicing 1,425 900 supplies used in testing 60 45 systems development 900 750 warranty repairs 3,300 1,050 Net cost of scrap 600 1,140 product testing 840 1,350 Product recalls 2,325 750 Disposal of Defective products 780 1,050Sales have been flat over the past few years, at $75,000,000 per year. A great deal of money has been spent in the effort to upgrade quality, and management is anxious to see whether or not the effort has been effective.
Required: 1.Prepare a quality cost report that contains data for both this year and last year. (Enter amount values in thousands. Round your percentage answers to 2 decimal places (i.e 0.1234 should be entered as 12.34)).
Florex Company Quality Cost Report Last Year This Year Amount (in Percent of Amount (in Percent of thousands) Sales thousands) Sales Prevention costs Total prevention costs Appraisal costs 0.00 0.00 Total appraisal costs Internal failure costs 0.00 0.00 Total internal failure costs 0.00 0.00 External failure costs Total external failure costs 0.00 0.00 Total quality cost
Explanation / Answer
Florex company Quality cost report Last Year This Year Amt('000) % to sale Amt('000) % to sale Preventive Cost Quality engineering 300 0.4 675 0.9 statistical process control 0 0 375 0.5 systems development 900 1.2 750 1 Total Preventive cost 1200 1.6 1800 2.4 Appraisal Cost inspection 630 0.84 1080 1.44 depreciation of test equipment 345 0.46 225 0.3 supplies used in testing 60 0.08 45 0.06 product testing 840 1.12 1,350 1.8 Total appraisal cost 1875 2.5 2700 3.6 Internal failure rework labor 1,200 1.6 1680 2.24 Total Internal Failure cost 1,200 1.6 1680 2.24 External failure cost cost of field servicing 1,425 1.9 900 1.2 warranty repairs 3,300 4.4 1,050 1.4 Net cost of scrap 600 0.8 1,140 1.52 Product recalls 2,325 3.1 750 1 Disposal of Defective products 780 1.04 1,050 1.4 Total External Failure cost 8,430 11.24 4,890 6.52
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