A quality control activity analysis indicated the following four activity costs
ID: 2430647 • Letter: A
Question
A quality control activity analysis indicated the following four activity costs of a hotel.
Verifying credit card information
523,600
Customer service training
261,800
Discounting room rates due to poor customer service
130,900
Correcting charges to customer invoices
392,700
Total
$1,309,000
Sales are $7,700,000 for the year. Prepare a cost of quality report.
Present percentage values to one decimal place.
Cost of Quality Report
Quality Cost Classification
Quality Cost
Percent of Total Quality Cost
Percent of Total Sales
Prevention
$
%
%
Appraisal
$
%
%
Internal Failure
$
%
%
External Failure
$
%
%
Total
$
Verifying credit card information
523,600
Customer service training
261,800
Discounting room rates due to poor customer service
130,900
Correcting charges to customer invoices
392,700
Total
$1,309,000
Explanation / Answer
Cost of Quality Report Quality Cost Classification Quality Cost Percent of Total Quality Cost Percent of Total Sales Prevention 261800 20.00% 3.4% Appraisal 523600 40.00% 6.8% Internal Failure 392700 30.00% 5.1% External Failure 130900 10.00% 1.7% Total 1309000 Sales 7700000 Prevention Costs are costs incurred to avoid or minimize the number of defects at first place. So, Customer Service Training is Prevention Cost Appraisal Costs are costs incurred to identify defective products before they are shipped to customers Verifying CC information Internal Failure costs incurred to remove defects from the products Correcting Charges to customer invoices External Failure Costs includes warranties, replacements etc Discounting Room Rates due to poor customer Services are external failure
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