During 2013 (the first year of operations), Ridenour Company produced 39,800 portable navigation systems. Of total production, 1,000 were found defective by quality appraisers. Six hundred of the defective units were reworked and sold through regular channels at the original price; the rest were sold as seconds with-out rework. (The uncorrected defect did not pose a hazard to customers; it was a “voice flaw” that made the units sometimes sound as if they were yelling at the users.) The navigation systems are sold with a two-year warranty; seconds have a six-month warranty.
In 2013, Ridenour Company spent $ 450,000 for prevention measures and $ 196,000 on appraisal. Following is the firm 2013 income statement, which appropriately does not reflect any income taxes:

a. Compute the total profit lost by Ridenour Company in its first year of operation by selling defective units as seconds rather than reworking them and selling them at the regular price.
b. Compute the company’s total failure cost in 2013.
c. Compute the company’s total quality cost in 2013.
d. Assume that selling and administrative expenses include $ 300,000 to operate a customer complaint center. How should this cost be categorized relative to quality costs?
e. Are the costs included in the 2013 income statement completely reflective of Ridenour’s qualitycosts?

  • CreatedJune 03, 2014
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