14–41
Problem 14.34 (Concluded)
4. The company should increase prevention and appraisal costs. The additional
Problem 14.35
1. January February
Prevention costs:
Quality planning (F) ……………….. $ 2,000 $ 2,000
New product review (F) ………….. 500 500
Quality training (F) …………………. 1,000 1,000
Total prevention costs ………. $ 3,500 $ 3,500
Appraisal costs:
Materials inspection (F) ………….. $ 2,500 $ 2,500
Product acceptance (V) ………….. 13,000 15,000
Problem 14.35 (Concluded)
2. Actual Budgeted
Costs Costs* Variance
Prevention costs:
Quality planning (F) ………………… $ 2,500 $ 2,000 $ 500 U
New product review (F) …………… 700 500 200 U
Rework (V) ……………………………… 11,000 9,900 1,100 U
Downtime (V) ………………………….. 5,500 5,500 0
Total internal failure costs ….. $ 36,000 $ 33,000 $ 3,000 U
External failure costs:
Warranty (V) …………………………... $ 17,500 $ 16,500 $ 1,000 U
14–43
Problem 14.36
1. 2014
Appraisal: $360,000/$2,048,000 = 17.6%
Prevention: $8,000/$2,048,000 = 0.4%
The pie chart for 2014 is as follows:
Relative Distribution of Quality Costs
Appraisal
14–44
Problem 14.36 (Continued)
2015
Appraisal: $328,000/$2,048,000 = 16.0%
The pie chart for 2015 is as follows:
Relative Distribution of Quality Costs
40.0%
36.1%
Appraisal
Prevention
14–45
Problem 14.36 (Concluded)
2. Major Company
Performance Report: Quality Costs
One-Year Trend
For the Year Ended December 31, 2015
Actual Costs Actual Costs*
2015 2014 Variance
Prevention costs:
Quality circles ………………………. $ 40,000 $ 4,000 $ 36,000 U
Design reviews ……………………… 20,000 2,000 18,000 U
Internal failure costs:
Scrap ……………………………………. $ 240,000 $ 350,000 $110,000 F
Rework …………………………..…….. 320,000 450,000 130,000 F
External failure costs:
Returned materials ……………….. $ 160,000 $ 200,000 $ 40,000 F
Allowances …………………………... 140,000 150,000 10,000 F
3. $2,048,000 – ($10,000,000 × 2.5%) = $1,798,000
14–46
Problem 14.37
1. Paper
Diapers Napkins Towels Total
Prevention ……………. 0.9% 1.00% 1.63% 1.08%
Appraisal………………. 0.8 1.17 1.63 1.08
2. Paper
Diapers Napkins Towels Total
Prevention ……………. 1.8% 2.00% 3.25% 2.15%
Appraisal………………. 1.6 2.33 3.25 2.15
Internal failure ………. 3.6 2.17 3.25 3.10
14–47
Problem 14.37 (Concluded)
3. Paper
Diapers Napkins Towels Total
Prevention …………….. 1.80% 3.33% 2.03% 2.15%
Appraisal ………………. 1.60 3.89 2.03 2.15
4. If quality costs are reported by segment, a manager will know where to con-
centrate efforts for cost reduction.
Problem 14.38
1. Internal External
Prevention Appraisal Failure Failure Total
2011 ……. 1.00% 2.00% 16.00% 12.00% 31.00%
2012 ……. 4.17 2.50 10.00 8.33 25.00
14–48
Problem 14.38 (Continued)
2.
Multiple–Period Trend Graph: Total Quality Costs
0
5
10
30
35
2011 2012 2013 2014 2015
Year
Percentage of Sales
14–49
Problem 14.38 (Concluded)
10
15
20
Year
Multiple–Period Trend Graph: Individual Quality Cost
Categories
Prevention Appraisal Internal Failure External Failure
Yes, quality costs overall have dropped from 31 percent of sales to 15 percent
of sales, a significant improvement. Real evidence for quality improvement
stems from the fact that internal failure costs have gone from 16 percent to
3. Quality costs at the 2011 rates:
Internal External
Prevention Appraisal Failure Failure Total
2014 …….. $6,000 $12,000 $96,000 $72,000 $186,000
14–50
Problem 14.39
1. Iona Company
Interim Performance Report: Quality Costs
For the Year Ended December 31, 2015
Actual Costs Budgeted Costs Variance
Prevention costs:
Fixed:
Quality planning ……… $ 150,000 $ 150,000 $ 0
Quality training……….. 20,000 20,000 0
Appraisal costs:
Variable:
Proofreading ………….. $ 520,000 $ 500,000 $ 20,000 U
Failure costs:
Variable:
Correction of typos …. $ 165,000 $ 150,000 $ 15,000 U
Rework …………………… 76,000 75,000 1,000 U
Plate revisions ……….. 58,000 55,000 3,000 U
14–51
Problem 14.39 (Continued)
2. Iona Company
Performance Report: Quality Costs
One-Year Trend
For the Year Ended December 31, 2015
Actual Costs Actual Costs
2015 2014 Variance
Prevention costs:
Fixed:
Quality planning ………. $ 150,000 $ 140,000 $ 10,000 U
Quality training ………… 20,000 20,000 0
Appraisal costs:
Variable:
Proofreading ……………. $ 520,000 $ 580,000 $ 60,000 F
Failure costs:
Variable:
Correction of typos ….. $ 165,000 $ 200,000 $ 35,000 F
Rework ……………………. 76,000 131,000 55,000 F
Plate revisions …………. 58,000 83,000 25,000 F
14–52
Problem 14.39 (Continued)
3.
Multiple–Period Trend Graph: Total Quality Costs
20
0
20
25
2011 2012 2013 2014 2015
Year
Note: Percentages are calculated as follows:
2011: $2,000,000/$10,000,000 = 20%
2012: $1,800,000/$10,000,000 = 18%
14–53
Problem 14.39 (Continued)
4.
Multiple-Period Trend Graph: Individual Quality
Cost Categories
6
8
10
Year
Prevention Appraisal Internal Failure External Failure
Increases in prevention and appraisal costs with simultaneous reductions in