Strategic Management Accounting Question -
Gopher, Inc. developing its upcoming budgeted Costs of Quality (COQ) with the following information:
Expense Item - Budget
Raw Materials Inspection - $ 15,000
EPA Fine - 200,000
Design Engineering - 15,000
Product Testing - 25,000
Rework Costs - 50,000
Preventive Maintenance - 10,000
Customer Returns - 125,000
Scrap - 60,000
The budgeted units produced and sold = 125,000. Sales price per unit = $50.00
Recent low customer satisfaction ratings have lead Gopher's management team to propose a Quality Initiative Program to improve product quality and lower expected COQ. The Quality Initiative would include the following costs:
- Product design changes that provide better product functionality $ 65,000
- Preventive equipment maintenance 20,000
- Increase inspection of direct materials from suppliers 20,000
- Increase product testing 30,000
Expected results from the Quality Initiative Program are as follows:
- Reduce the EPA fine by $150,000
- Reduce Customer Returns by 38.20%
- Reduce Scrap Costs by 65%
- Reduce Rework by 50%
Based on the information above, provide answers to the following questions. Show calculations to support/validate your answers and clearly show your answer to each of the following questions.
1. For budgeted Expense Items in the table above (i.e. BEFORE the Quality Initiative Program), sort the Expense Items by COQ by category, provide total COQ by category and calculate the percentage of each COQ category to Total Quality Costs.
2. What is the budget Total COQ BEFORE the Quality Initiative Program as a percentage of Revenue?
3. Assume Gopher Inc. includes the Quality Initiative Program in its upcoming budget. Recalculate the budget amounts for each expense item by COQ category including the Quality Initiative Program costs and expected results for each COQ category. Calculate the new COQ budget by COQ category, and as a percentage of budgeted Total Quality Costs.
4. What is the budget Total COQ AFTER the Quality initiative Program as a percentage of Revenue (assume no changes to budgeted units or sales price)?
5. Discuss the expected results of the Quality Initiative Program for each COQ category and Gopher Inc. in total.
Prevention -
Appraisal -
Internal Failure -
External Failure -
Gopher Inc. -