Long-Term Performance Report

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

Prevention costs:
Prototype inspection	$ 200,000
Vendor certification	400,000
Total prevention costs	$ 600,000
Appraisal costs:
Process acceptance	$ 215,000
Test labor	260,000
Total Appraisal costs	$ 475,000
Internal failure costs:
Retesting	$ 137,500
Rework	275,000
Total internal failure costs	$ 412,500
External failure costs:
Recalls	$ 295,500
Product liability	590,750
Total external failure costs	$ 886,250
Total quality costs	$2,373,750

At the zero-defect state, Nabors expects to spend $250,000 on prototype inspection, $50,000 on vendor certification, and $45,000 on process acceptance. Assume sales to be $2,600,000.

Required:

Question Content Area

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 inspectionProduct liabilityPrototype inspectionRecallsRetesting	$- Select -	$- Select -	$- Select -	FavorableUnfavorable
Packaging inspectionProduct liabilityRecallsRetestingVendor certification	- Select -	- Select -	- Select -	FavorableUnfavorable
Total prevention costs	$- Select -	$- Select -	$- Select -	FavorableUnfavorable
Appraisal costs:
Process acceptanceProduct liabilityQuality engineeringRecallsRetesting	$- Select -	$- Select -	$- Select -	FavorableUnfavorable
Product liabilityQuality engineeringRecallsRetestingTest labor	- Select -	- Select -	- Select -	FavorableUnfavorable
Total appraisal costs	$- Select -	$- Select -	$- Select -	FavorableUnfavorable
Internal failure costs:
Packaging inspectionProduct liabilityQuality engineeringRecallsRetesting	$- Select -	- Select -	$- Select -	FavorableUnfavorable
Packaging inspectionProduct liabilityQuality engineeringRecallsRework	- Select -	- Select -	- Select -	FavorableUnfavorable
Total internal failure costs	$- Select -	- Select -	$- Select -	FavorableUnfavorable
External failure costs:
Packaging inspectionQuality engineeringRecallsRetestingRework	$- Select -	- Select -	$- Select -	FavorableUnfavorable
Packaging inspectionProduct liabilityQuality engineeringRetestingRework	- Select -	- Select -	- Select -	FavorableUnfavorable
Total external failure costs	$- Select -	- Select -	$- Select -	FavorableUnfavorable
Total quality costs	$- Select -	$- Select -	$- Select -	FavorableUnfavorable
Percentage of sales	- Select -%	- Select -%	- Select -%	FavorableUnfavorable

Question Content Area

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.