Question
Long-Term Performance Report Nabors Company had actual quality costs for the year ended June 30, 20x5, as given below. Prevention costs: Prototype inspection $ 240,000
Long-Term Performance Report
Nabors Company had actual quality costs for the year ended June 30, 20x5, as given below.
Prevention costs: | |
Prototype inspection | $ 240,000 |
Vendor certification | 480,000 |
Total prevention costs | $ 720,000 |
Appraisal costs: | |
Process acceptance | $ 255,000 |
Test labor | 300,000 |
Total Appraisal costs | $ 555,000 |
Internal failure costs: | |
Retesting | $ 157,500 |
Rework | 315,000 |
Total internal failure costs | $ 472,500 |
External failure costs: | |
Recalls | $ 367,250 |
Product liability | 536,250 |
Total external failure costs | $ 903,500 |
Total quality costs | $2,651,000 |
At the zero-defect state, Nabors expects to spend $300,000 on quality engineering, $60,000 on vendor certification, and $75,000 on packaging inspection. Assume sales to be $2,400,000.
Required:
1. Prepare a long-range performance report for 20x5. Enter all answers as positive amounts. If the budget variance amount is unfavorable select "Unfavorable" in the last column of the table. Select "Favorable" 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, 20x5 | ||||
Actual Costs | Target Costs | Budget Variance | Favorable; or Unfavorable | |
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 | % | % | % |
2. Why are quality costs still present for the zero-defect state?
Inefficiencies mean that some defects will still occur
Prevention costs are value-added costs that are necessary to maintain the quality gains
OR
Some non-value-added costs will still persist, even at the zero-defect state
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