Hartley Corporation manufactures computer processors for leading computer makers.

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Jake Brandt is the management accountant for one of Hartley's largest manufacturing plants. His bonus is based on the plant's revenues. The plant's general manager, John Taylor, has just returned from a meeting at corporate headquarters where quality expectations were outlined for 2020. John calls Jake into his office to relay the corporate objective to minimize quality costs and that total quality costs will not exceed 8% of total revenues by plant under any circumstances. John asks Jake to provide him with a list of options for meeting corporate headquarters' quality objective. More info For each processor sold at the current price, the contribution margin is positive. Prior to receiving the new corporate quality objective, Jake had collected information for all of the plant's possible options for improving both product quality and costs of quality. He was planning to introduce the idea of reengineering the manufacturing process at a one-time cost of$158,000, which would decrease product inspection costs by approximately 30% per year and is expected to reduce warranty repairs and customer support by an estimated 35% per year. It would also allow the plant to produce and sell 5% more units. After seeing the new corporate objective, Jake crunches the numbers again and comes up with another idea. By increasing the cost-of-quality control training for production staff by $38,000 per year, the plant would reduce product inspection costs by 30% annually and reduce warranty repairs and customer support costs by 45% per year as well. However, under this option, the plant wouldn't be able to increase its production and sales.

Data table

Revenues	$8,500,000
Quality costs:
Inspection of raw materials	$1,930
Raw material scrap	25,300
Customer support	37,000
Quality design engineering	84,000
Engineering redesign of failed parts	73,500
Rework of failed parts	63,800
Product inspection	186,000
Warranty repairs	179,000
Quality control training for production staff	82,000

Requirements

1.

Calculate the ratio of each budgeted costs-of-quality category (prevention, appraisal, internal failure, and external failure) to budgeted revenues for

2020.

Are the budgeted total costs of quality as a percentage of budgeted revenues currently less than

8%?

2.

Which of the two quality options should

Jake

propose to the general manager,

John

Taylor?

Show the impact on quality costs and revenues for the two options: (a) reengineer the manufacturing process for

$158,000

and (b) increase quality training expenditure by

$38,000

per year. Do the calculations using a 1-year time horizon.

3.

Requirements

1.	Calculate the ratio of each budgeted costs-of-quality category (prevention, appraisal, internal failure, and external failure) to budgeted revenues for 2020. Are the budgeted total costs of quality as a percentage of budgeted revenues currently less than 8%?
2.	Which of the two quality options should Jake propose to the general manager, JohnTaylor? Show the impact on quality costs and revenues for the two options: (a) reengineer the manufacturing process for $158,000 and (b) increase quality training expenditure by $38,000 per year. Do the calculations using a 1-year time horizon.
3.	Suppose Jake decides not to present the quality training option to John. Is Jake's action unethical? Explain.

Requirement 1. Calculate the ratio of each budgeted costs-of-quality category (prevention, appraisal, internal failure, and external failure) to budgeted revenues for

2020.

Are the budgeted total costs of quality as a percentage of budgeted revenues currently less than 8%? Begin by selecting the prevention costs. Calculate the ratio of prevention costs to revenues for 2020, then continue with appraisal, internal failure and external failure costs. Finally, calculate the total costs of quality and the total percentage of revenues. (Round percentages to two decimal places, X.XX%.)

		Percentage of
Costs of Quality	Cost	Total Revenue
Prevention Costs
			%