Explore BrainMass

Explore BrainMass

    Quality cost performance report

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Granger Company, a large printing company, is in its fourth year of a five year quality improvement program. The program began in 2006 with a internal study that revealed the quality costs being incurred. In that year, a five year plan was developed to lower quality costs to 10 percent of sales by the end of 2010. Sales and quality costs for each year are as follows:

    Sales Revenues: Quality Costs:
    2006 $10,000,000 $2,000,000
    2007 $10,000,000 $1,800,000
    2008 $11,000,000 $1,815,000
    2009 $12,000,000 $1,680,000
    2010 $12,000,000 $1,320,000

    Quality costs by category are expressed as a percentage of sales as follows:

    Prevention Appraisal Internal Failure External Failure
    2006 1% 3% 7% 9%
    2007 2% 4% 6% 6%
    2008 2.5% 4% 5% 5%
    2009 3% 3.5% 4.5% 3%
    2010 3.5% 3.5% 2% 2%

    The detail of the 2010 budget for quality costs is also provided.

    Prevention costs:
    Quality Planning $150,000
    Quality Training $20,000
    Quality Improvement (special project) $80,000
    Quality Reporting $10,000

    Appraisal costs:
    Proofreading $500,000
    Other Inspection $50,000

    Failure Costs:
    Correction of typos $150,000
    Rework (because of customer complaints) $75,000
    Plate revisions $55,000
    Press downtime $100,000
    Waste (because of poor work) $130,000
    Total Quality Costs: $1,320,000

    All prevention costs are fixed; all other quality costs are variable.
    During 2010, the company had $12 million in sales. Actual quality costs for 2009 and 2010 are as follows:

    2009: 2010:
    Quality Planning $140,000 $150,000
    Quality Training $20,000 $20,000
    Special Project $120,000 $100,000
    Quality Reporting $12,000 $12,000
    Proofreading $580,000 $520,000
    Other Inspection $80,000 $60,000
    Correction of typos $200,000 $165,000
    Rework $131,000 $76,000
    Plate Revisions $83,000 $58,000
    Press downtime $123,000 $102,000
    Waste $191,000 $136,000

    Questions:
    1. Prepare an interim quality cost performance report for 2010 that compares actual quality costs with budgeted quality costs. How was the firm's ability to achieve its quality goals for the year?

    2. Prepare a single period quality performance report for 2010 that compares the actual quality costs of 2009 with the actual costs of 2010. How much did profits change because of improved quality?

    © BrainMass Inc. brainmass.com June 3, 2020, 10:50 pm ad1c9bdddf
    https://brainmass.com/business/financial-accounting-bookkeeping/quality-cost-performance-report-251847

    Solution Summary

    The solution explains how to prepare a quality cost performance report

    $2.19

    ADVERTISEMENT