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Prepare a cost of quality report

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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.

Reference no: EM133050691

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