Friday, 26 September 2014

Yedder Enterprises was a pioneer in designing and producing precision surgical lasers. Yedder’s product was brilliantly designed, but the manufacturing process was neglected by management with a consequence that quality problems have been chronic.

Yedder Enterprises was a pioneer in designing and producing precision surgical lasers. Yedder’s product was brilliantly designed, but the manufacturing process was neglected by management with a consequence that quality problems have been chronic. When customers complained about defective units, Yedder would simply send out a repairperson or replace the defective unit with a new one. Recently, several competitors came out with similar products without Yedder’s quality problems, and as a consequence Yedder’s sales have declined.

          To rescue the situation, Yedder embarked on an intensive campaign to strengthen its quality control at the beginning of the current year. These efforts met with some success—the downward slide in sales was reversed, and sales grew from $90 million last year to $100 million this year. To help monitor the company’s progress, costs relating to quality and quality control were compiled for last year and for the first full year of the quality campaign this year. The costs, which do not include the lost sales due to a reputation for poor quality, appear below:

 
Costs (in thousands)
      Last Year   This Year
  Product recalls $ 2,592    $ 600   
  Systems development $ 522    $ 950   
  Inspection $ 828    $ 1,240   
  Net cost of scrap $ 693    $ 1,470   
  Supplies used in testing $ 27    $ 100   
  Warranty repairs $ 4,374    $ 1,440   
  Rework labor $ 1,170    $ 2,000   
  Statistical process control $ 0    $ 170   
  Customer returns of defective goods $ 1,521    $ 1,110   
  Cost of testing equipment $ 180    $ 360   
  Quality engineering $ 504    $ 820   
  Downtime due to quality problems $ 855    $ 1,300   


Required:
1.
Prepare a quality cost report for both this year and last year. (Round your percentage answers to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" and "%" signs in your response.)

Yedder Enterprises
Quality Cost Report (in thousands of dollars)
 
Last Year
This Year
          Amount
        (000s)
Percent of
Sales
        Amount
        (000s)
Percent of
Sales
  Prevention Costs:        
    Systems development $    %   $    %  
    Statistical process control    %      %  
    Quality engineering    %      %  
 



  Total prevention costs    %      %  
 



  Appraisal Costs:        
    Inspection    %      %  
    Supplies used in testing    %      %  
    Cost of testing equipment    %      %  
 



  Total appraisal costs    %      %  
 



  Internal failure costs:        
    Net cost of scrap    %      %  
    Rework labor    %      %  
    Downtime due to quality problems    %      %  
 



  Total internal failure costs    %      %  
 



  External failure costs:        
    Product recalls    %      %  
    Warranty repairs    %      %  
    Customer returns of defective goods    %      %  
 



  Total external failure costs    %      %  
 



  Total quality cost $    %   $    %