Assume you are the management accountant for the Foleo Group. James and Leon have called you and the CFO into a meeting to discuss concerns they have with the number of SliFones that are being returned by customers under warranty. They have pulled some numbers from the accounting system and elsewhere regarding not only the warranty costs, but also other expenses associated with the quality of the phones for the current year. The directors have handed you the below costs and asked you to look into why faulty SliFones are being returned by customers.

Quality Activity	Cost of Quality Activity
Testing phones during production processes	$25,000
Cost of reworking faulty phones	$24,500
Quality Assurance testing before delivery of phones	$11,700
Cost of replacing faulty phones returned under warranty	$78,300
Cost of servicing customers quality complaints	$66,900
Cost of scrapped phones during production	$11,300
Quality training for production staff	$5,000
Cost of recalling SliFones with faulty batteries	$174,500
Production downtime due to suppliers poor quality components	$67,500
Maintenance on production equipment	$1,300
TOTAL QUALITY COSTS	$466,000

(a) Prepare a Cost of Quality Report.

(Hint: Classify each of the quality costs as Prevention, Appraisal, Internal or External Failure costs)

(Hint: Ensure you include the percentage of total cost for each category.)

Cost of Quality Report.

Quality Activities Costs Total % of total

Total Quality Costs

(b) Prepare a written report for the Directors that explains and analyses the Cost of Quality Report you have just prepared. In your report to James and Leon, you must also include a recommendation on how to improve the overall quality of the SliFone.