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Preparing a cost-of-quality report The following data have just been gathered on last year’s quality-related costs at the Ideal Company:
|
COST CATEGORY |
AMOUNT |
|
Product recalls |
$325,000 |
|
Downtime due to defects |
600,000 |
|
Warranty claims |
420,000 |
|
Inspection of and testing of incoming materials |
300,000 |
|
Product liability lawsuits |
500,000 |
|
Process quality audits |
350,000 |
|
Rework costs |
2,000,000 |
|
Quality training |
150,000 |
|
Process control monitoring |
350,000 |
|
Repair costs in the field |
375,000 |
|
Statistical process control |
300,000 |
|
Waste |
900,000 |
|
Net cost of scrap |
1,500,000 |
|
Supplier certification |
350,000 |
|
Quality engineering |
200,000 |
|
Returned products |
380,000 |
Total sales last year were $75,000,000.
Required
(a) Prepare a cost-of-quality report grouping costs into prevention, appraisal, internal failure, and external failure. Also show costs as a percentage of sales.
(b) Interpret the data and make recommendations to Ideal’s management.
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