Crowder Manufacturing Company manufactures and sells ceiling

Crowder Manufacturing Company manufactures and sells ceiling fans. Crowder incurred the following costs related to quality for the year: Cost of warranty $35,000 Cost of employee quality training $27,000 Cost incurred to rework fans $18,000 Spoilage cost (net) $15,000 Cost of handling customer complaints $11,000 Depreciation cost of test equipment $ 6,000 Cost of quality circles $ 5,000 Maintenance cost of test equipment $ 3,000 Cost of retesting reworked fans $ 2,000 Cost of final testing of fans $ 1,000 Required:

a) Prepare a list of the costs, which are related to controlling quality and determine the total dollar amount of these costs.

b) Prepare a list of the costs, which are related to failing to control quality and determine the total dollar amount of these costs.

c) Explain why you might want to incur higher costs for controlling quality.

Solution

a) List of cost related to controlling Quality S.no Nature of cost Amount(in $) 1 Cost of Warranty 35000 2 Cost of employye quality Training 27000 3 Depreciation on test equipment 6000 4 Cost of Quality Circles 5000 5 Maintaince of Test equipment 3000 6 Cost of Final testing 1000 77000 b) List of cost related to failing of controlling Quality S.no Nature of cost Amount(in $) 1 Cost incurred to rework fans 18000 2 Spoilage Cost 15000 3 Cost of handling Customer Complaints 11000 4 Cost of testing reworked fans 1000 45000 c) Reasons for incurring higher costs for controlling quality: 1 Prevention is better then cure. So company want to maintain a good quality of the product which is sent into the market 2 If number of complaints increases the goodwill of the producr will reduce in the market and effects the overall product market of the company