1. Bespoke Gears is an automobile manufacturer. In its early years of operation, it had a reputation for the outstanding quality of cars it produced, a key factor in its growth and success. In recent years, management has observed that Bespoke has lost market share to its competitors. In a survey conducted by an online car dealership platform, Bespokes ranking among the cars in its class slipped to sixteenth from fifth. The decline in ranking, upon further investigation of the scores in different areas, was mainly caused by unsatisfactory quality.

The CEO, in response to the survey result, decided to implement a program to strengthen quality control at the beginning of last year. Activities in the program include the following:

1. Increase the customer support team staff
2. Employee training in product quality
3. More frequent inspections of products
4. Replacing defective products sold with new ones

After implementing the program for 1 year, the CEO asked Daniel Jones, the accounting manager, to evaluate whether the program was successful. Jones used two criteria to assess the effectiveness of the program: (1) total cost of quality as a percentage of total production costs and (2) total nonconformance costs. Presented below are the quality control reports for the year before and the year after the program was implemented:

	Costs
	Year 7 Before the program	Year 8 After the program
Cost of scrap	$ 72,000	$ 62,000
Downtime	156,000	155,000
Employee quality training	60,000	124,000
Inspection	30,000	62,000
Product recalls	60,000	31,000
Rework	120,000	62,000
Statistical process control	48,000	93,000
Systems development	48,000	62,000
Testing	66,000	93,000
Warranty repairs	240,000	124,000
Warranty replacement	180,000	62,000
Total production cost	6,000,000	6,200,000

Question:

1. Describe the categories of the costs of quality.