Problem $19\mathrm{.}4$A $($Static$)$ Cost of Quality $($LO$19-7,$ LO$19-8)$

Arusetta Inc. produces a popular brand of air conditioner that is backed by a five$-$year warranty. In year $1,$ Arusetta began implementing a total quality management program that has resulted in significant changes in its cost of quality. Listed as follows is Arusetta$$s financial information relating to sales and quality for years $1$ and $2.$

Year $1$ Year $2$

Sales revenue $ $500,000$ $ $500,000$

Warranty expense $22,00018,500$

Product design $5,00015,000$

Scrap $2,0001,200$

Process reengineering $8,00012,000$

Raw materials inspections $4,8002,300$

Product liability claims $5,0008,500$

Rework $3,1002,800$

Returns resulting from defects $7,0004,500$

Supplier certification costs $5002,500$

Preventive maintenance on equipment $1,3002,600$

Final inspection costs $10,0007,000$

Employee quality training $1,2004,000$

Equipment breakdown repair costs $8,5003,000$

Estimate of lost sales due to quality problems $10,00010,000$

Prepare a cost of quality report for Arusetta covering Year $1$ and Year $2.$

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