| Subject Code : | ACC2360 | Country : | Australia |
|---|
Assignment Task:
Task:
Analysis of costs of quality
Tiny Tots Travel (TTT) produces car seats for children from newborn to two years old. The company is worried because one of its competitors has recently come under public scrutiny owing to product failure. TTT’s only problem with its car seats is stitching in the straps. The problem can usually be detected and repaired during an internal inspection. The cost of the inspection is $5.00 per car seat and the repair cost is $1. All 200 000 car seats were inspected last year and 9% were found to have problems with the stitching in the straps. Another 1% of the 200 000 car seats had problems with the stitching but were not detected during internal inspection. When TTT has sold and shipped defective seats to customers, customers return them and TTT pays $8 for shipping costs and repairs the units at a cost of $1 per seat. However, the shipping and repair costs are not the only costs resulting from the defects that remained undetected by the internal inspection. Management estimates that negative publicity and social media commentary will result in a loss of $100 for each defect discovered by customers.
Required
1. Identify and calculate each cost-of-quality category, and the total costs of quality for TTT.
2. TTT is concerned about the high up-front cost of inspecting all 200 000 units. It is considering an alternative internal inspection plan that will cost only $3.00 per car seat inspected. During the internal inspection this alternative technique will detect only 6.5% of the 200 000 car seats that
have stitching problems. The other 2.5% will be detected after the car seats are sold and shipped. What are the total costs of quality for the alternative technique?
3. What factors other than cost should TTT consider before changing inspection techniques?
Required:
a. Calculate the actual contribution margin for the month.
b. Calculate the contribution margin for the static budget.
c. Calculate the contribution margin for the flexible budget.
d. Determine the total static-budget variance, the total flexible-budget variance, and the total sales-volume variance in terms of the contribution margin.
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