Windy Kitchen is a manufacturer of baked beans. Kim Gordon is the CEO of Windy Kitchen and a strong believer in continuous quality improvement. Recently, Kim asked her management accountant, Tom Hardee, to gather further information about quality costs for her company. Below is a list of quality-related costs manually prepared by Tom for the years 20X1 and 20X2.

20X1 20X2

Customer Returns $3,000 $8,000

Handling Customer Complaints $6,000 $5,000

Inspection of WIP $20,000 $10,000 Machines Repair $16,000 $17,500

Product Recalls $2,000 $10,000

Quality Training $10,000 $8,000

Raw Materials Inspection $20,000 $15,000

Rework $15,000 $14,000 Scrap Processing $30,000 $40,000

Technical Training $50,000 $30,000 Total $172,000 $157,500

Sales revenue for Windy Kitchen was $500,000 in 20X1 and $550,000 in 20X2.

(a) Prepare a combined cost of quality report for Windy Kitchen for both 20X1 and 20X2. Include proportions of the major quality cost categories as a percentage of sales.

(b) When Kim, the CEO, receives the cost of quality report from you, she is amazed and says, “Why haven’t I been able to access this information from our accounting systems before?” Explain to Kim why she may not have been able to easily extract this information from the company’s accounting system?

(c) Kim is very happy that the total cost of quality has decreased from $172,000 to $157,500. She believes that the company is moving in the right direction. Analyse and assess Windy Kitchen’s quality improvement progress with respect to the cost of quality information you have calculated in part (a). Do you agree with Kim that the company is “moving in the right direction” on quality costs?

Answer rating: 100% (QA)

Answer A Windy Kitchen Quality Cost Report for the year ended 20X2 Quality Costs Year 20X2 Percentage of sales Year 20X1 Percentage of sales Preventio... View the full answer