Reference no: EM132814667

Question - Contribution margin forgone on bikes returned by customers, $5,625.

Contribution margin forgone on lost future bike sales, $18,750.

Cost of bikes returned by customers and scrapped $16,250.

Cost of faulty bikes that are scrapped after finished goods inspection, $27,500.

Cost of faulty components that are scrapped, $11,250.

Cost of quality training programs, $10,000.

Cost of repairs under warranty, $9,375.

Cost of replacement bikes provided under warranty, $22,500.

Cost of re-welding faulty joints discovered during processing, $53,750.

Engineering costs to correct production line quality problems, $42,500.

General engineering costs, $97,500.

Bike showroom running expenses, $41,250.

Inspection of bikes put into finished goods warehouse, $45,000.

Laboratory testing of bikes and components, $37,500.

Lost contribution on machine downtime during correction of production line quality problems, $56,250.

Operating an X-ray machine to detect faulty welds, $41,250.

Quality inspection in the goods receiving area, $38,750.

Quality inspections during processing, $46,250.

Rework on defective wheels, $21,250.

Sales commissions on faulty bikes returned by customers, $5,000.

Sales commissions paid to sacked employees, $26,250.

During this period, total manufacturing costs were $2,259,000.

Requirements -

1. Prepare cost of quality report, showing each category of quality costs that provides information to the management in an informative way.

2. Comment on the relative proportions of each of the four categories of quality costs. Your answer should include your analysis as well as your evaluation of the current situation.