Reference no: EM133050691
Question - Acer Ltd. manufactures and sells kids motorbikes. The Company's management is concerned about the quality of their product and has asked the management accountant to identify all the quality related costs and submit a report.
The following list of quality costs have been identified by the accountant, for the financial year ended 30th September 2019.
Quality Costs
Technical support to suppliers of materials (used in the manufacture of bikes) - $6,000
Finished goods inspection - $25,000
Product design reviews - $12,000
Quality testing - $5,000
Rework - $9,000
Scrap - $15,000
Employee quality training - $35,000
Customer quality complaints - $20,000
Returned goods - $10,000
Sales revenue for the Company was $950,000 for the same financial year.
Required -
(a) Prepare a cost of quality report (in tabulated form) which should consist of the following information:
i. Classification of the quality costs under prevention costs, appraisal costs, internal failure costs, and external failure costs categories.
ii. Calculation analysis in terms of percentage of total quality costs.
iii. Calculation Analysis in terms of percentage of total sales.
(b) Explain how management can benefit from cost of quality report.