Interim Quality Performance Reports
Good quality cost management requires that quality costs bereported and controlled (control having a cost reduction emphasis).Control enables managers to compare actual outcomes with standardoutcomes to gauge performance and take any necessary correctiveactions. The total quality management standard is the robustzero-defects standard. This standard requires that goods andservices be produced that meet the targeted value of specifiedquality characteristics. Achieving zero defects typically requiresyears and so a variety of quality performance reports are used tomeasure the progress of a company’s quality improvement program.One such report is the interim standard report. This reportmeasures progress by comparing this year’s quality costs to thebudgeted quality costs for the year. The budgeted quality costs area reduction in the prior year’s quality costs resulting fromplanned quality improvements.
Apply the Concepts
The actual quality costs are provided for Wilson Company for theyears ended June 30, Year 1 and June 30, Year 2:
| Year 1 | Year 2 |
| Prevention costs: | | |
| Quality Training | $102,400 | $128,000 |
| Reliability engineering | 204,800 | 256,000 |
| Appraisal costs: | | |
| Materials inspection | $106,240 | $134,400 |
| Process acceptance | 121,600 | 153,600 |
| Internal failure costs: | | |
| Scrap | $88,000 | $80,000 |
| Rework | 193,000 | 160,000 |
| External failure costs: | | |
| Customer complaints | $130,000 | $104,000 |
| Warranty | 295,000 | 264,000 |
At the end of Year 1, management decided to increase itsinvestment in control costs by 25 percent for each category’s itemswith the expectation that failure costs would decrease by 20percent for each item of the failure categories. Sales were$12,800,000 for both Year 1 and Year 2.
1. Prepare the budgeted costs for Year 2, andprepare an interim quality performance report by completing thefollowing table (round all budgeted amounts to the nearest dollarand percentages to two decimal places):
| Wilson Company Interim Standard PerformanceReport: Quality Costs |
| For the Year Ended June 30, Year2 |
| Actual Costs | Budgeted Costs | Variance |
| Prevention costs: | | | | | | | |
| Quality Training | $ | | $ | | $ | | |
| Reliability engineering | | | | | | | |
| Total prevention costs | $ | | $ | | $ | | |
| Appraisal costs: | | | | | | | |
| Materials inspection | $ | | $ | | $ | | |
| Process acceptance | | | | | | | |
| Total appraisal costs | $ | | $ | | $ | | |
| Internal failure costs: | | | | | | | |
| Scrap | $ | | $ | | $ | | |
| Rework | | | | | | | |
| Total internal failure costs | $ | | $ | | $ | | |
| External failure costs: | | | | | | | |
| Customer complaints | $ | | $ | | $ | | |
| Warranty | | | | | | | |
| Total external failure costs | $ | | $ | | $ | | |
| Total quality costs | $ | | $ | | $ | | |
| Percentage of sales | % | | % | | % | | |
