XYZ LTD manufactures and sells premium quality branded sports shoes in India. Noted sports clubs and their members are the main customers. They follow quality mechanisms to ensure supply is met. Finished products show some rectifiable defects. These problems can be detected and rectified during the internal inspection. The inspection cost is Rs.30 per unit. The rectification cost is Rs.18 per unit. In 2020, 60000 pairs of shoes were manufactured and sold. After inspection defect was
detected in respect of 5% of output. The inspection cost is Rs. 30 per pair. After-sales, customers reported defects in respect of 6% of output. These shoes were received back from customers at a transportation cost of Rs10 per pair.
Due to the current pandemic and negative outflow, arising out of the sale of defective materials, loss in sales is expected in next year to the extent of 5% of external failures.
Required:
(a) Analyse the cost of quality showing its elements separately with working
(b) If the selling price per pair of shoes is Rs 600 and variable cost is 60% of sales, fixed cost is Rs.
5,50,000 p.a., prepare the profitability statement for the product during 2017.