Activity-Based Quality Costing Abernathy, Inc., produces two different generator

Question

Activity-Based Quality Costing Abernathy, Inc., produces two different generators and is concerned about their quality. The company has identified the following quality activities and costs associated with the two products: Units produced Warranty work (units) Scrapped units (number) Inspection (hours) Quality training (hours) Activities: Generator A 170,000 1,700 3,400 3,400 85 Generator B 340,000 850 850 1,700 85 Performing warranty work Scrapping units Inspecting Quality training $816,000 612,000 306,000 85,000 Required: 1. Calculatethe quality cost per unit for each product, and break this unit cost into quality cost categories. If required, round your answers to the nearest cent. Generator A Generator B Unit cost Which of the two seems to have the lowest quality?

Explanation / Answer

Generator B has lowest quality cost.

Activity rates A B Warranty work 816000/(1700+850]=320 1700*320=544000 850*320=272000 scrapping units 612000/[3400+850]=144 3400*144=489600 850*144=122400 Inspecting 306000/[3400+1700]=60 3400*60=204000 1700*60= 102000 Quality training 85000/[85+85]= 500 85*500= 42500 85*500=42500 Total cost 1280100 538900 Units Total cost/total units 1280100/170000 = $ 7.53 538900/340000= $ 1.585 [rounded to 1.59 ] unit cost

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