Prepare a Costs of Quality report (Learning Objective 5)

Goodchill Industries manufactures freezers. Here is some information about its LX17 line of freezers over the past year:

Number of units manufactured and sold	5,000 units
Selling price per unit	$1,500
Variable manufacturing and selling costs per unit	$800
Hours spent by engineers improving design	1,000
Testing and inspection hours per unit	0.5 hours
Percentage of units reworked in the plant after inspection	10%
Average variable rework costs per freezer	$400
Percentage of units repaired under warranty at customers homes	8%
Average variable repair costs at customers homes per freezer	$450
Estimated lost sales due to quality reputation	300 units
Design engineers labor rate (includes benefits and payroll taxes)	$75 per hour
Inspection costs per hour	$40 per hour

Requirements

1. Prepare a Cost of Quality (COQ) report. In addition to calculating the total costs of each category, calculate the percentage of each COQ category of the total COQ.

2. Why would the variable repair cost at the customers home generally be higher than the in factory rework cost?

3. How can use of the COQ report lead to improvements in the production process or in the quality of the product itself?