Nelson Corporation manufactures auto parts for two leading Japanese automakers. Maudy Evans is the management accountant...

 

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Nelson Corporation manufactures auto parts for two leading Japanese automakers. Maudy Evans is the management accountant for one of Nelson's largest manufacturing plants. The plant's General Manager, Noah Sheldon, has just returned from a meeting at corporate headquarters where quality expectations were outlined for 2019. Noah calls Maudy into his office to relay the corporate quality objective that total quality costs will not exceed 10% of total revenues by plant under any circumstances. Noah asks Maudy to provide him COQ for 2019 are as follows: Revenue Quality design engineering Engineering redesign of failed parts Rework of failed parts Warranty repairs Product inspection Quality control training for production staff Field trials Materials scrap Customer support 4,000,000 60,000 20,000 35,000 85,000 120,000 7,000 40,000 15,000 40,000 After Maudy computes the total COQ on revenues in 2019, Maudy collects information for all of the plant's possible options for improving both product quality and costs of quality. She concludes that by increasing the cost of quality control training for production staff by $17,000 per year, the company would reduce product inspection costs by 20% annually, reduce warranty repairs costs by 25% per year, and reduce rework of failed parts costs by 30% per year, as well. Required: 1. Prepare the COQ report and calculate the ratio of each costs-of-quality category (prevention, appraisal, internal failure, and external failure) to revenues for 2019. Are the total costs of quality (COQ) as a percentage of revenues currently less than 10%? (8%) 2. Show the effect of increasing the cost of quality control training for production staff by $17,000 on COQ next year. How much the COQ percentage of revenues in 2020? (assume the amount of revenues is similar with 2019) (4%) 3. Do you think the general manager, Noah Sheldon will accept Maudy's proposal to increase the cost of quality control training for production staff? Explain your reason. (3%) Nelson Corporation manufactures auto parts for two leading Japanese automakers. Maudy Evans is the management accountant for one of Nelson's largest manufacturing plants. The plant's General Manager, Noah Sheldon, has just returned from a meeting at corporate headquarters where quality expectations were outlined for 2019. Noah calls Maudy into his office to relay the corporate quality objective that total quality costs will not exceed 10% of total revenues by plant under any circumstances. Noah asks Maudy to provide him COQ for 2019 are as follows: Revenue Quality design engineering Engineering redesign of failed parts Rework of failed parts Warranty repairs Product inspection Quality control training for production staff Field trials Materials scrap Customer support 4,000,000 60,000 20,000 35,000 85,000 120,000 7,000 40,000 15,000 40,000 After Maudy computes the total COQ on revenues in 2019, Maudy collects information for all of the plant's possible options for improving both product quality and costs of quality. She concludes that by increasing the cost of quality control training for production staff by $17,000 per year, the company would reduce product inspection costs by 20% annually, reduce warranty repairs costs by 25% per year, and reduce rework of failed parts costs by 30% per year, as well. Required: 1. Prepare the COQ report and calculate the ratio of each costs-of-quality category (prevention, appraisal, internal failure, and external failure) to revenues for 2019. Are the total costs of quality (COQ) as a percentage of revenues currently less than 10%? (8%) 2. Show the effect of increasing the cost of quality control training for production staff by $17,000 on COQ next year. How much the COQ percentage of revenues in 2020? (assume the amount of revenues is similar with 2019) (4%) 3. Do you think the general manager, Noah Sheldon will accept Maudy's proposal to increase the cost of quality control training for production staff? Explain your reason. (3%)

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