Charles Berkle is the manager of Nogain Manufacturing and is interested in doing a cost of quality analysis. The following cost and revenue data are available for the most recent year ended December 31.
Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $500,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . 272,000
Warranty expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . 34,000
Inspection costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . 15,000
Scrap and rework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... . . . . . . . . . . . . . . . . . . . . . . 10,600
Product returns due to defects . . . . . . . . . . . . . . . . . . . . . . . . ...... . . . . . . . . . . . . . . . . . . . . 6,000
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... . . . . . . . . . . . . . . . . 32,000
Machine maintenance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... . . . . . . . . . . . . . 11,000
Wage expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,000
Machine breakdown costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... . . . . . . . . . . . . 5,400
Estimated lost sales due to poor quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... . . . . . . . . 10,000
a. Classify each of these costs into the four quality cost categories and prepare a cost of quality
report for Nogain.
b. What percentage of sales revenue is being spent on prevention and appraisal activities?
c. What percentage of sales revenue is being spent on internal and external failure costs?