Question # 1:

2021 2022

Depreciation of test equipment	$94,000	$95,000
Audits of the effectiveness of the quality system	$54,000	$51,000
Product recalls	$20,000	$30,000
Test and inspection of incoming materials	$82,000	$85,000
Re-entering data because of keying errors	$11,000	$16,000
Rework labour and overhead	$48,000	$54,000
Technical support provided to suppliers	$12,000	$10,000
Net cost of scrap	$29,000	$33,000
Lost sales due to poor quality	$74,000	$84,000

Sales grew from $950,000 in 2021 to $1,000,000 in 2022.

Required:

Prepare a quality cost report in proper order and in good form with separate sections for each of the four types of quality costs with appropriate subtotals and an overall total for both years as well as a percentage of sales column. Carry percentage computations to one decimal place. (15 marks).

Answer to Question #1

Quality Cost Report

	2022	%	2021	%
Sales	1,000,000		950,000
Prevention Costs:
Appraisal Costs:
Internal Failure costs:
External failure Costs:
Total

Question # 2:

The IT Corporation produces and markets two types of electronic calculators: Model 11 and Model 12. The following data were gathered on activities last month:

	Model 11	Model 12
Sales in units	5,000	3,000
Selling price per unit	$50	$100
Variable production costs per unit	$10	$26
Traceable fixed production costs	$100,000	$150,000
Variable selling expenses per unit	$5	$6
Traceable fixed selling expenses	$5,000	$7,500
Allocated division administrative expenses	$50,000	$60,000

Required:

1. Prepare a segmented income statement in the contribution format for last month. Traceable fixed costs may be combined on a single line on the statement. (10 marks)

Answer to question # 2:

Segmented Income Statement in Contribution Format

Model -11	Model -12

Question # 3:

1. Identify three types of responsibility centres and describe how performance is measured for each one.

1. What is meant by the terms margin and turnover?

Sales grew from $950,000 in 2021 to $1,000,000 in 2022.