Problem 17-51 Name:
Insert your answers in the gray-shaded cells. Enter amounts to
be subtracted as negatives. If an answer is incorrect, the word
“wrong” will appear.
a. Unit price for regular channel sales 260$
Less unit price for scrap sales (140)
Difference 120$
× Number of scrap units sold 400
Profit lost on scrap units 48,000$
b. Profit lost 48,000$
Rework cost incurred 21,000
Total failure cost 69,000$
c. Total failure cost 55,000$
Prevention and appraisal cost 646,000
Total quality cost 701,000$
d.
e.
Solution
What evidence indicates that the firm is dedicated to manufacturing and
selling high-quality products?
The $300,000 cost of the customer complaint center should be
considered as part of external failure costs. That cost would increase
total failure cost to $355,000, making total failure cost over half of the
total of prevention and appraisal costs.
Are the costs included in the 2013 income statement completely
reflective of Ridenour’s quality costs?
No, the costs are not fully reflective of the company’s cost due to the
outstand-ing warranties on the products. It is unknown at what point in
time the units were sold during the year, and thus, many of the units
could still be returned for warranty work. The estimated cost of
warranty work is considered a contingen-cy and, if estimable, should be
included within the selling expenses of the cur-rent year. That estimate
would also be considered a part of external failure cost.