Compute the ratio of prevention and appraisal costs


Problem 1. The Colorado Manufacturing Company of Boulder Colorado has gathered the following quality-related costs. You are hired as a consultant to evaluate these costs and to make recommendations to management.

a. Compute the ratio of prevention and appraisal costs to failure costs.

b. Identify strategies for reducing failure costs.

Annual Quality Costs

Failure Costs

            Defective products                   4,234

            Engineering scrap                    21,265

            Noneengineering scrap            224,123  

            Consumer adjustments           125,654

            Downgrading products          2,125,328  

            Lost Goodwill                   Not evaluated

           Customer Policy Changes Not evaluated       

                TOTAL

Appraisal costs

            Receiving Inspection              24,138

            Line 1 inspection                       7,256

            Line 2 inspection                       8,543

            Spot Checking                          2,766

                 TOTAL                 

Prevention costs

            Quality training                       25,500

            Process engineering

               Corporate                          132,678        

               Plant                                   44,124

            Product redesign                     10,422

                TOTAL

Problem 2.  The Aggie Remanufacturing Company of College Station in Texas has gathered the following quality-related costs date:

a. Compute the ratio of prevention and appraisal costs to failure costs.

b. What would you recommend that this company do?

Annual Quality Costs

Failure Costs

            Defective products                   4,234

            Engineering scrap                    21,265

            Noneengineering scrap            24,123  

            Consumer adjustments            25,654

            Downgrading products                     0  

            Lost Goodwill                 Not evaluated

           Customer Policy Changes Not evaluated       

                TOTAL

Appraisal costs

            Receiving Inspection              10,155

            Line 1 inspection                       9,225

            Line 2 inspection                       7,455

            Spot Checking                          9,766

                 TOTAL                 

Prevention costs

            Quality training                        25,500

            Process engineering

               Corporate                           132,678        

               Plant                                     44,124

            Product redesign                       10,422

                TOTAL

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Accounting Basics: Compute the ratio of prevention and appraisal costs
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