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[The following information applies to the questions displayed below.] Acme Materials Company manufactures and sells synthetic coatings that can withstand high temperatures. Its primary customers are aviation manufacturers and maintenance companies. The following table contains financial information pertaining to cost of quality (COQ) in 2019 and 2020 (in thousands of dollars): 2019 2020 Sales $ 16,600 $ 20,600 Materials inspection 360 66 In-process (production) inspection 166 131 Finished product inspection 310 76 Preventive equipment maintenance 26 66 Scrap (net) 560 360 Warranty repairs 760 510 Product design engineering 156 330 Vendor certification 16 66 Direct costs of returned goods 335 86 Training of factory workers 46 146 Product testing—equipment maintenance 66 66 Product testing labor 270 96 Field repairs 76 46 Rework before shipment 300 206 Product-liability settlement 420 66 Emergency repair and maintenance 260 81 Required: 1. Classify the cost items in the table into cost-of-quality (COQ) categories. 2. Calculate the ratio of each COQ category to revenues in each of the 2 years. 3. Calculate the percentage change in each COQ category and total COQ and comment on the results: a. Percentage change in total COQ as a percentage of sales, from 2019 to 2020; b. Total COQ in 2020 expressed as a percentage of 2019 sales dollars; c. Percentage change in total prevention costs, 2019 to 2020; d. Percentage change in total appraisal costs, 2019 to 2020; e. Percentage change in total internal failure costs, 2019 to 2020; f. Percentage change in total external failure costs, 2019 to 2020.

Answer 1

	Acme Materials Company	Amount $	Amount $	Type
	Particulars	2019	2020
	Sales	16,600	20,600
	Materials inspection	360	66	Appraisal costs
	In-process (production) inspection	166	131	Appraisal costs
	Finished product inspection	310	76	Appraisal costs
	Product design engineering	156	330	Appraisal costs
	Vendor certification	16	66	Appraisal costs
A	Total Cost of Appriasal	17,608	21,269
	Difference (21269-17608)		3,661
	% Change (3661/17608)		21%
	Warranty repairs	760	510	External failure costs
	Direct costs of returned goods	335	86	External failure costs
	Field repairs	76	46	External failure costs
	Product-liability settlement	420	66	External failure costs
B	Total External failure costs	1,591	708
	Difference (21269-17608)		-883
	% Change (3661/17608)		-55%
	Scrap (net)	560	360	Internal failure costs
	Rework before shipment	300	206	Internal failure costs
	Emergency repair and maintenance	260	81	Internal failure costs
C	Total Internal failure costs	1,120	647
	Difference (21269-17608)		-473
	% Change (3661/17608)		-42%
	Preventive equipment maintenance	26	66	Prevention Costs
	Training of factory workers	46	146	Prevention Costs
	Product testing—equipment maintenance	66	66	Prevention Costs
	Product testing labor	270	66	Prevention Costs
	Total Prevention Costs	408	344
D	Difference (21269-17608)		-64
	% Change (3661/17608)		-16%
	Acme Materials Company	Amount $	Amount $	Type
	Particulars	2019	2020
	Sales	16,600	20,600
	Materials inspection	360	66	Appraisal costs
	In-process (production) inspection	166	131	Appraisal costs
	Finished product inspection	310	76	Appraisal costs
	Product design engineering	156	330	Appraisal costs
	Vendor certification	16	66	Appraisal costs
A	Total Cost of Appriasal	17,608	21,269
	Difference (21269-17608)		3,661
	% Change (3661/17608)		21%
	Warranty repairs	760	510	External failure costs
	Direct costs of returned goods	335	86	External failure costs
	Field repairs	76	46	External failure costs
	Product-liability settlement	420	66	External failure costs
B	Total External failure costs	1,591	708
	Difference (21269-17608)		-883
	% Change (3661/17608)		-55%
	Scrap (net)	560	360	Internal failure costs
	Rework before shipment	300	206	Internal failure costs
	Emergency repair and maintenance	260	81	Internal failure costs
C	Total Internal failure costs	1,120	647
	Difference (21269-17608)		-473
	% Change (3661/17608)		-42%
	Preventive equipment maintenance	26	66	Prevention Costs
	Training of factory workers	46	146	Prevention Costs
	Product testing—equipment maintenance	66	66	Prevention Costs
	Product testing labor	270	66	Prevention Costs
	Total Prevention Costs	408	344
D	Difference (21269-17608)		-64
	% Change (3661/17608)		-16%

Cost of poor quality (COPQ) is defined as the costs associated with providing poor quality products or services. There are three categories:

1. Appraisal costs are costs incurred to determine the degree of conformance to quality requirements.
2. Internal failure costs are costs associated with defects found before the customer receives the product or service.
3. External failure costs are costs associated with defects found after the customer receives the product or service

Appraisal costs

Appraisal costs are associated with measuring and monitoring activities related to quality. These costs are associated with the suppliers’ and customers’ evaluation of purchased materials, processes, products, and services to ensure that they conform to specifications.

Internal failure costs

Internal failure costs are incurred to remedy defects discovered before the product or service is delivered to the customer. These costs occur when the results of work fail to reach design quality standards and are detected before they are transferred to the customer.

External failure costs

External failure costs are incurred to remedy defects discovered by customers. These costs occur when products or services that fail to reach design quality standards are not detected until after transfer to the customer.

PREVENTION COSTS

Prevention costs are incurred to prevent or avoid quality problems. These costs are associated with the design, implementation, and maintenance of the quality management system. They are planned and incurred before actual operation

Comments: Company has significantly reduce significantly reduce their failure and preventive cost by employing corrective measure in Appraisal costs leading to better product less scrap & other repair cost.