Evans Company had total sales of $3,000,000 for fiscal 2015. The costs of quality-related activities are given below.
Returns/allowances ......$150,000
Design changes ...... 180,000
Prototype inspection ...... 39,000
Downtime ........ 120,000
Quality circles ........ 6,000
Packaging inspection ...... 42,000
Field testing ........ 18,000
Complaint adjustment ...... 195,000
Required:
1. Prepare a quality cost report, classifying costs by category and expressing each category as a percentage of sales. What message does the cost report provide?
2. Prepare a bar graph and pie chart that illustrate each category’s contribution to total quality costs. Comment on the significance of the distribution.
3. What if, five years from now, quality costs are 7.5 percent of sales, with control costs being 65 percent of the total quality costs? What would your conclusion be?