Reference no: EM132993086

Questions -

A - Kane Ltd manufactures microchips for use in a variety of devices. Profits have fallen in recent years and the financial controller believes that some non-value adding costs are to do with quality, and asks you to put together a cost of quality report for September. The report should break down quality costs into four categories as a dollar amount and as a percentage of the total quality related costs.

You are able to extract the following quality related costs from the accounting system for September:

Inspection of electrical components purchased from outside suppliers: $28,000 Costs of rework on faulty chips discovered internally: $90,900 Replacement of faulty chips already sold under warranty: $181,000 Costs of scrapped defective parts discovered during the manufacturing process: $46,000

Training of quality control inspectors: $18,000

Tests of chips prior to sale: $10,200

When you consult the sales manager about the warranty costs, he informs you that last month 5% of products were returned by customers because of defects.

Upon receipt of the report, the financial controller says that she is desperate to make cost savings and believes that delaying further training of quality control inspectors and suspending inspection and testing will be "quick wins" in reducing quality related costs. She is also keen to reduce the other costs in the report but is less clear that this can be done quickly.

Required - Prepare the cost of quality report requested by the financial controller (in $ and %, including headings and sub-headings).

B- Explain to the financial controller why her response to the report may not be the best way to reduce quality related costs in the long term.

Make reference in your answer to which quality related costs the report will not have identified; and which costs may actually need to increase in the short term in order to lower quality costs over a longer period of time.