Interim Quality Performance Report

Davis, Inc., had the following quality costs for the years ended December 31, 20x4 and 20x5:

	20x4	20x5
Prevention costs:
Quality audits	$72,000	$108,000
Vendor certification	112,500	168,750
Appraisal costs:
Product acceptance	$90,000	$135,000
Process acceptance	103,000	117,500
Internal failure costs:
Retesting	$90,000	$82,000
Rework	200,000	182,000
External failure costs:
Recalls	$155,000	$124,000
Warranty	300,000	294,000

At the end of 20x4, management decided to increase its investment in control costs by 50 percent for each categorys items with the expectation that failure costs would decrease by 20 percent for each item of the failure categories. Sales were $12,000,000 for both 20x4 and 20x5.

Required:

1. Calculate the budgeted costs for 20x5.

$

Feedback

The costs of quality are associated with two subcategories of quality-related activities: control activities and failure activities.

Prepare an interim quality performance report. Enter all answers as positive amounts. If there is no variance enter "0" for your answer. If the budget variance amount is unfavorable select "Unfavorable" in the last column of the table, select "Favorable" if it is favorable, or No effect if there is no change. Round percentage answers to two decimal places. For example, 5.789% would be entered as "5.79".

Davis, Inc.
Interim Standard Performance Report: Quality Costs
For the Year Ended December 31, 20x5
	Actual Costs	Budgeted Costs	Variance	Unfavorable, Favorable or No effect
Prevention costs:
Quality audits	$	$		No effect
Vendor certification				No effect
Total prevention costs	$	$		No effect
Appraisal costs:
Product acceptance	$	$		No effect
Process acceptance			$	Favorable
Total appraisal costs	$	$	$	Favorable
Internal failure costs:
Retesting	$	$	$	Unfavorable
Rework				Unfavorable
Total internal failure costs	$	$	$	Unfavorable
External failure costs:
Recalls	$	$		No effect
Warranty				Unfavorable
Total external failure costs	$	$	$	Unfavorable
Total quality costs	$	$	$	Unfavorable
Percentage of sales	%	%	%	Unfavorable

Feedback

Review the interim quality performance report comparing budgeted and actual performance you have learned in the chapter.

2. What can be inferred from the report regarding the progress Davis has made?

Davis has come very close to meeting the planned outcomes

3. What if sales were $12,000,000 for 20x4 and $15,000,000 for 20x5? What adjustment to budgeted rework costs would be made? (Note: Quality auditing is a discretionary cost and its budget is not affected by the change in sales revenue in 20x5.)

New total budgeted rework costs: $

2. Review the variances arising from comparing actual costs to budgeted costs.

3. To determine if an adjustment would need to be made, consider whether the cost is fixed or variable.

Compare the actual costs for 20x5 to the new budget.