Cost of Quality Reporting.

Frank Riney was reviewing the following list of expenses and wondering where he could use quality improvements to cut costs and bring his profits back into line with his budget.

This list of expenses includes the expenses incurred at his plant for the past month.

Expense Amount Rework of defective parts $ 35,000 Warranty expense 50,000 Freight on incoming material 130,000 Wages—quality inspectors 75,000 Wages—quality circle meetings 5,000 Scrap costs 85,000 Raw material used 11,890,000 Goods returned by customers 120,000 Wages—warranty department 35,000 Wages—incoming inspection of material 25,000 Direct labor 870,000 Depreciation—test equipment 12,000 Repairs on broken dies and tools 45,000 Indirect labor—idle time caused by machine breakdowns 20,000 Utilities expense 150,000 Engineering design expense 320,000 $ 13,867,000 Required:

a. Compute the cost of internal failures.

b. Compute the cost of external failures.

c. Ifyou were the manager of this plant and you could improve the quality of the products produced, which two costs would you choose as the first two for your quality efforts?
Justify your answer. LO.1