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Quality Cost Report: Red Lake Enterprises

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I am not sure how to begin answering this problem. It seems very confusing to me and I am just unsure of how to get started and if I need to use an excel spreadsheet. From what I can tell it looks like I will, but I am just really stressed out about this problem.

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9-46 Quality Cost Report
The manufacturing division of Red Lake Enterprises makes a variety of home furnishings. The company
prepares monthly reports on quality costs. In early 20X7, Red Lake's president asked you, the
controller, to compare quality costs in 20X6 to those in 20X4. He wanted to see only total annual
numbers for 20X6 compared with 20X4. You have prepared the report shown in Exhibit 9-13.
Quality Cost Area 20X4 Cost 20X6 Cost
1. Prevention cost 45 107
% of Total quality cost 3.3% 12.4%
2. Appraisal cost 124 132
% of Total quality cost 9.1% 15.2%
3. Internal failure cost 503 368
% of Total quality cost 36.9% 42.5%
Total internal quality cost (1 _ 2 _ 3) 672 607
% of Total quality cost 49.3% 70.1%
4. External failure cost 691 259
% of Total quality cost 50.7% 29.9%
Total quality cost 1,363 866
Total product cost 22,168 23,462
Exhibit 9-13
Red Lake Enterprises
Quality Cost Report
(thousands of dollars)
1. For each of the four quality cost areas, explain what types of costs are included and how those
costs have changed between 20X4 and 20X6.
2. Assess overall quality performance in 20X6 compared with 20X4. What do you suppose has
caused the changes observed in quality costs?

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The solution performs a quality cost report for Red Lake Enterprises.

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Question 1
Quality costs, or the costs of the activities performed to ensure that the products of an organization are at par with quality requirements, are comprised of the prevention, appraisal, internal failure and external failure costs.

Prevention costs are comprised of the costs of support activities ensuring that defects during the manufacturing process. This ...

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