70.2K

Verified Solution

Link Copied!

problem 19.4A

19-8 19.4A ality Arusetta Inc. produces a popular brand of air conditioner that is backed by a five-year warranty In year 1, Arusetta began implementing a total quality management program that has resulted in significant changes in its cost of quality. Listed as follows is Arusetta's financial information relat- ing to sales and quality for years 1 and 2. . Sales revenue. Warranty expense Product design Scrap Process reengineering Raw materials inspections Product liability claims Rework Returns resulting from defects Supplier certification costs Preventive maintenance on equipment Final inspection costs Employee quality training Equipment breakdown repair costs Estimate of lost sales due to quality problems Year 1 Year 2 $500,000 $500,000 22.000 18,500 5,000 15,000 2,000 1.200 8,000 12,000 4,800 2.300 5,000 8.500 3,100 2,800 7.000 4,500 500 2,500 1,300 2,600 10,000 7,000 1,200 4,000 8,500 3,000 10.000 10,000 Instructions a. Prepare a cost of quality report for Arusetta covering year 1 and year 2. Your report should divide the costs into the four categories of quality costs and include total dollar amounts for each category. b. How have the total amounts of prevention and external failure costs changed over the two years? What are some possible explanations for these changes? c. At Arusetta, preventive maintenance has a direct effect on the repair costs associated with equipment breakdowns. Did the decrease in repair costs justify the increase in maintenance costs? d. Why might Arusetta's estimate of lost sales remain the same despite the adoption of the total quality management program

Answer & Explanation Solved by verified expert

See Answer