EXERCISE 1 In response to intensive foreign competition, the management of Florex Company has attempted over the past year to improve the quality of its products. A statistical process control system has been installed and other steps have been taken to decrease the amount of warranty and other field costs, which have been trending upward over the past several years. Costs relating to quality and quality control over the last two years are given below: Inspection Quality engineering Depreciation of test equipment Rework labour Statistical process control Cost of field servicing Supplies used in testing System development Warranty repairs Net cost of scrap Product testing Product recalls Disposal of defective products This year $900 000 570 000 240 000 1 500 000 180 000 900 000 60 000 750 000 1 050 000 1 125 000 1 200 000 750 000 975 000 Last year $750 000 420 000 210 000 1 050 000 1 200 000 30 000 480 000 3 600 000 630 000 810 000 2 100 000 720 000 Sales have been flat over the past few years, at $75 000 000 per year. A great deal of money has been spent in the effort to upgrade quality, and management is anxious to see whether or not the effort has been effective. REQUIRED (a) (b) Prepare a quality cost report that contains data for both this year and last year. Classify clearly each of the cost above in categories and carry percentage computations to two decimal places. Prepare a written evaluation to accompany the reports you have prepared in requirement (a) above. TOTAL MARKS Marks 20 5 25