In response to intensive foreign competition, the management of Florex Company has attempted over the past year to improve the quality of its products. A statistical process control system has been installed and other steps have been taken to decrease the amount of warranty and other field costs, which have been trending upward over the past several years. Costs relating to quality and quality control over the last two years are given below:

Sales have been flat over the past few years, at %75,000,000 per year. A great deal of money has been spent in the effort the upgrade quality, and management is anxious to see whether or not the effort has been effective.

1. Prepare a quality cost report that contains data for both this year and last year. Carry percentage computations to two decimal places.

2. Prepare a bar graph showing the distribution of the various quality costs by category.

3. Prepare a written evaluation to accompany the reports you have prepared in (1) and (2) above. This evaluation should discuss the distribution of quality cost in the company, changes in this distribution that you see taking place, the reasons for changes in costs in the various categories, and any other information that would be of value of management.

Transcribed Image Text:

Cost (in thousands) This Year Las Year Inspection . $750 $900 $570 $420 Quality engineering... Depreciation of test equipment.... $240 $210 S1,500 S1,050 Rework labor... Statistical process control. $180 so Cost of field servicing.. $900 S1,200 Supplies used in testing.. $60 $30 $750 $480 Systems development... Warranty repairs.. $3,600 S1,050 Net Cost of scrap.. $1,125 $630 Product testing. $1,200 $810 $750 Product recalls.. $2,100 Disposal of defective products.... $975 $720