Quality Cost Report:
The manufacturing division of Red Lake Enterprises makes a variety of home furnishings. The com¬pany prepares monthly reports on quality costs. In early 20X7, Red Lake's president asked you, the controller, to compare quality costs in 20X6 to those in 20X4. He wanted to see only total annual numbers for 20X6 compared with 20X4. You have prepared the report shown in Exhibit.
|
Quality Cost Area
|
|
|
|
20X4 Cost
|
20X6 Cost
|
|
1. Prevention cost
|
45
|
107
|
|
% of Total quality cost
|
3.3%
|
12.4%
|
|
2. Appraisal cost
|
124
|
132
|
|
% of Total quality cost
|
9.1%
|
15.2%
|
|
3. Internal failure cost
|
503
|
368
|
|
% of Total quality cost
|
36.9%
|
42.5%
|
|
Total Internal quality cost (1 + 2 + 3)
|
672
|
607
|
|
% of Total quality cost
|
49.3%
|
70.1%
|
|
4. External failure cost
|
691
|
259
|
|
% of Total quality cost
|
50.7%
|
29.9%
|
|
Total quality cost
|
1,363
|
866
|
|
Total product cost
|
22,168
|
23,462
|
1. For each of the four quality cost areas, explain what types of costs are included and how those costs have changed between 20X4 and 20X6.
2. Assess overall quality performance in 20X6 compared with 20X4. What do you suppose has caused the changes observed in quality costs?