BA381Problem Set 3 CHAPTER 2: 2-1, Part A Expedition Outfitters produces expensi

Question

BA381Problem Set 3 CHAPTER 2: 2-1, Part A Expedition Outfitters produces expensive water repellent, down-lined parkas. The company implemented a total quality-management program in 2009. Following are quality-related accounting data that have been accumulated for the five-year period after the program's start. Quality Costs (000s) Internal failure External failure Prevention 2012 S52.8 105.8 10.1 31.3 2013 38.7 96.4 28.1 29.5 2014 $37.2 94.5 39.1 23.4 2015 S30.3 70.1 49.0 19.7 S47.0 115.9 isal 29.7 2013 2014 S392.1 2737.4 2015 S401.2 2801.3 Accounting Measures (000s) 2011 2012 Manufacturing cost S373.4 2534.5 $374.2 2422.6 2599.0 a. Compute the company's total failure costs as a percentage of total quality costs for each of the five ycars. Does there appear to be a trend to this result? If so, speculate on what might have caused the trend. b. Compute prevention costs as a percentage of total quality costs and appraisal costs as a percentage of total quality costs for cach of the five years. Speculate on what the company's quality strategy appears to be. c. Compute quality-sales indices and quality-cost indices for cach of the five years. Is it possible to assess the effectiveness of the company's quality-management program from these index values? What is your evaluation? Part B: Expedition Outfitters produces approximately 19,000 parkas annually. The quality management program has shown results, improving the average percentage of good parkas produced by 2.5% each year beginning with 79% good-quality parkas in 2011 . Of the poor-quality parkas that are produced about 20% can be reworked and sold as good. d. Compute the following for cach of the 5 years: the number parkas that are of salcable quality after the first run, the number parkas that are rejected after the first run, the number of reworked parkas, and the total number of saleable parkas (the product yield). e. Using a rework cost of $15.50 per parka, determine the costs to rework parkas, the total manufacturing cost and the manufacturing cost per saleable parka for cach of the five years. What do these results imply about the company's quality management program? Hint: You know the cost to produce a oodfirst-run parka. yow ere recovering second-run parkay, then honw muck does it cost to recover them? How many do you reoer? How do yow incorporate rhose mumbers into the overall cost of prodwcing good parkas?) You are on the right track if. for 2011: Total Failure Casts as a %of Total Quality Casts-83.196, Prevention Casts as a % of Total Quality Casts-1.8%. Appraisal Casts s %of Total Ouality Costs-15.2%, Ouality Sales Index-7.7%, (uality Cast Index-52.5%, and Manufacturing Cost per Saleable Parka-24.40 (results may vary slighty from rounding

Explanation / Answer

CHAPTER 2: Part A

Quality Costs

Cost of achieving Good quality = (Prevention + Appraisal)

Quality Costs

Cost of Poor Quality = (Internal + External Failure)

a. Total Failure costs as % = (External + Internal failure costs) / Total Quality costs

The appearing trend is that the total failure costs are decreasing while total quality costs remain same. It can be speculated that the amount of failed parkas is decreasing each year.

Explanation:

Total Failure costs as %  = (External + Internal failure costs) / Total Quality costs

2011 = 162.90 / 196.1 = 83.1%

2012 = 158.60 / 200 = 79.3%

2013 = 135.10 / 192.70 = 70.1%

2014 = 131.70 / 194.20 = 67.8%

2015 = 100.40 / 169.10 = 59.4%

b. Total Prevention costs as % = Prevention costs / Total Quality costs

Total appraisal costs as % = Appraisal costs / Total Quality costs

Based on the percentages, I would speculate that the company has turned their focus on preventing poor quality parkas, which could have decreased their failure costs by almost 30% in just 4 years. This seems to have paid off because their total quality costs have continued to decrease as well.

c. Quality sales Index = Total quality costs / Sales

Explanation:

Quality sales Index = Total quality costs / Sales

2011 = 196.10 / 2534.5 = 7.7%

2012 = 200 / 2422.6 = 8.3%

2013 = 192.7 / 2599 = 7.4%

2014 = 194.20 / 2737.4 = 7.1%

2015 = 169.10 / 2801.3 0 = 6%

Quality Cost Index = Total Quality Costs / Manufacturing

Explanation:

Quality Cost Index = Total Quality Costs / Manufacturing

2011 = 196.10 / 373.4 = 52.5%

2012 = 200 / 374.2 = 53.4%

2013 = 192.7 / 382.1 = 50.4%

2014 = 194.20 / 392.1 = 49.5%

2015 = 169.10 / 401.2 = 42.1%

These index values provide little insight into the effectiveness of the quality management program. My evaluation is that the quality management program has not improved. This is not to say that they have poor quality management. Their quality costs in proportion to their sales is fairly low. They have a lot of room for improvement in their quality cost index.

Part B:

d.

e.

Explanation:

Rework costs

2011 = 798 * $15.5 = $12,369

2012 = 703 * $15.5 = $10,896.50

2013 = 608 *$15.5 = $9,424

2014 = 513 *$15.5 = $7,951.50

2015 = 418 *$15.5 = $6,479

Manufacturing cost per parka = Total Manufacturing cost / Total number of Saleable Parkas

2011 = $385,769 / 15808 = $24.40

2012 = $385,096 / 16188 = $23.79

2013 = $391,524 / 16568 = $23.63

2014 = $400,051.50 / 16948 = $23.60

2015 = $$407,679 / 17328 = $23.53

2011 2012 2013 2014 2015

Quality Costs

Cost of achieving Good quality = (Prevention + Appraisal)

33.2 41.4 57.6 62.5 68.7

Quality Costs

Cost of Poor Quality = (Internal + External Failure)

162.90 158.60 135.10 131.70 100.40 Total Quality Costs 196.10 200 192.70 194.20 169.10

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