At the end of 2001, Minot Metal Works began to focus on its quality costs. As a first step, it identified the following costs in its accounting records as quality-related:

2001 Sales (50,000 units @ $20) $1,000,000 Scrap 30,000 Rework 40,000 Training program 12,000 Consumer complaints 20,000 Warranty 40,000 Test labor 30,000 Inspection labor 25,000 Supplier evaluation 3,000 Required:

1. Prepare a quality cost report by quality cost category.

2. Calculate the relative distribution percentages for each quality cost category.

Comment on the distribution.

3. Using the Taguchi quality loss function, an average loss per unit is computed at

$3. What are the hidden costs of external failure? How does this affect the relative distribution? What effect will the hidden-cost information have on a qual- ity-improvement program?