Red River Manufacturing Division makes a variety of home furnishings. In 2010 the company installed a system to report on quality costs. At the end of 2012 the division general manager wanted an assessment of whether quality costs in 2012 differed from those in 2010. Each month the actual costs had been compared with the plan, but at this time the manager wanted to see only total annual numbers for 2012 compared with 2010. The production supervisor prepared the following report. 

Red River Manufacturing Division Quality Cost Report (in thousands of dollars) 

1. For each of the four quality cost areas, explain what types of costs are included and how those costs have changed between 2010 and 2012. 

2. Assess overall quality performance in 2012 compared with 2010. What do you suppose has caused the changes observed in quality costs?

Transcribed Image Text:

Quality Cost Area 2010 Cost 2012 Cost 107 1. Prevention Cost 45 % of Total Quality Cost 2. Appraisal Cost % of Total Quality Cost 3.3% 12.4% 124 132 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) % of Total Quality Cost 672 607 49.3% 70.1% 691 4. External Failure Cost 259 % of Total Quality Cost Total Quality Cost 50.7% 29.9% 1,363 866 Total Product Cost 22,168 23,462 % Total Quality Cost to Total Product Cost 6.1% 3.7%