Recently, Quest Company received a report from an external consulting group on its quality costs. The consultants reported that the companys quality costs total about 21 percent of its sales revenues. Somewhat shocked by the magnitude of the costs, Bill Musk, president of Quest Company, decided to launch a major quality-improvement program. For the coming year, management planned to reduce quality costs to 17 percent of sales revenues. Although the amount of reduction was ambitious, most company officials believed that the goal could be realized. To improve the monitoring of the quality improvement program, Bill directed Mercy Golding, the quality controller, to prepare monthly performance reports. Mercy collected the following actual sales and actual quality costs in first quarter of following year.

Sales ($) 550,000 Quality Costs ($): Warranty 17,500 Scrap 12,500 Incoming materials inspection 2,500 Product acceptance 14,000 Quality planning 2,500 Field inspection 14,000 Retesting 7,000 Allowances for warranty visits 8,500 New product review 700 Rework 11,000 Complaint adjustment 2,500 Downtime (defective parts) 5,500 Quality training 1,000

1. Reorganize the quality costs reported so that quality costs are grouped in one of the four cost categories of the PAF Model

[15 marks]

1. Comment on the companys progress in improving quality and reducing its quality costs.

What advise would you give the company? Be quantitative.