Long-Term Performance Report

Nabors Company had actual quality costs for the year ended June 30, 20x5, as given below.

Prevention costs:
Prototype inspection	$ 340,000
Vendor certification	680,000
Total prevention costs	$ 1,020,000
Appraisal costs:
Process acceptance	$ 355,000
Test labor	400,000
Total Appraisal costs	$ 755,000
Internal failure costs:
Retesting	$ 207,500
Rework	415,000
Total internal failure costs	$ 622,500
External failure costs:
Recalls	$ 241,750
Product liability	539,000
Total external failure costs	$ 780,750
Total quality costs	$3,178,250

At the zero-defect state, Nabors expects to spend $425,000 on quality engineering, $85,000 on vendor certification, and $60,000 on packaging inspection. Assume sales to be $2,800,000.

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:
Packaging inspection Product liability Prototype inspection Recalls Retesting	$	$	$	Favorable Unfavorable
Packaging inspection Product liability Recalls Retesting Vendor certification				Favorable Unfavorable
Total prevention costs	$	$	$	Favorable Unfavorable
Appraisal costs:
Process acceptance Product liability Quality engineering Recalls Retesting	$	$	$	Favorable Unfavorable
Product liability Quality engineering Recalls Retesting Test labor				Favorable Unfavorable
Total appraisal costs	$	$	$	Favorable Unfavorable
Internal failure costs:
Packaging inspection Product liability Quality engineering Recalls Retesting	$		$	Favorable Unfavorable
Packaging inspection Product liability Quality engineering Recalls Rework				Favorable Unfavorable
Total internal failure costs	$		$	Favorable Unfavorable
External failure costs:
Packaging inspection Quality engineering Recalls Retesting Rework	$		$	Favorable Unfavorable
Packaging inspection Product liability Quality engineering Retesting Rework				Favorable Unfavorable
Total external failure costs	$		$	Favorable Unfavorable
Total quality costs	$	$	$	Favorable Unfavorable
Percentage of sales	%	%	%	Favorable Unfavorable

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.
• Some non-value-added costs will still persist, even at the zero-defect state.