MICHIGAN CORPORATION reported sales of $8,100,000 in 2020. At the end of the year, the following quality costs were reported:

Design review $405,000
Lost sales 270,000
Materials inspection 54,000
Process acceptance 67,500
Product inspection 40,500
Quality training 135,000
Recalls 135,000
Reinspection 67,500
Returned goods 128,250
Scrap 47,250

Required:
1. What are quality costs?
2. Describe the four types of quality costs. Which is the most significant and important to control and why?
3. Would some of these costs be considered ‘overhead’? If so, which ones?
4. Where would you prefer to invest company resources? Upstream or Downstream?
5. Prepare a quality cost report for 2020, expressing costs as a percentage of sales.
6. Prepare a graph (either a pie chart or bar graph) that illustrates the relative distribution of quality costs and
comment on the distribution
7. Overall, what is your conclusion about the management of quality costs for this company?