Cornerstone Exercise 14.4 (Algorithmic) Long-Term Performance Report

Nabors Company had actual quality costs for the year ended June 30, 2015, as given below.

Prevention costs:
Prototype inspection	$ 230,000
Vendor certification	460,000
Total prevention costs	$ 690,000
Appraisal costs:
Process acceptance	$ 245,000
Test labor	290,000
Total Appraisal costs	$ 535,000
Internal failure costs:
Retesting	$ 152,500
Rework	305,000
Total internal failure costs	$ 457,500
External failure costs:
Recalls	$ 208,000
Product liability	558,000
Total external failure costs	$ 766,000
Total quality costs	$2,448,500

At the zero-defect state, Nabors expects to spend $287,500 on quality engineering, $57,500 on vendor certification, and $50,000 on packaging inspection. Assume sales to be $2,000,000.

Required:

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1. Prepare a long-range performance report for 2015. What does this report tell the management of Nabors? Enter all answers as positive amounts. If the budget variance amount is unfavorable enter "U" in the last column of the table. Enter "F" if it is favorable. Round percentage answers to two decimal places, if rounding is required. For example, 5.789% would be entered as "5.79". Enter "0" as the target cost amount if there would be no cost at the zero-defect state.

Nabors Company
Long-Range Performance Report
For the Year Ended June 30, 2015
		Actual Costs		Target Costs		Budget Variance		Favourable (F) or Unfavorable (U)
Prevention costs:
		$		$		$
Total prevention costs		$		$		$
Appraisal costs:
		$		$		$
Total appraisal costs		$		$		$
Internal failure costs:
		$				$
Total internal failure costs		$				$
External failure costs:
		$				$
Total external failure costs		$				$
Total quality costs		$		$		$
Percentage of sales				%		%