In 2004, Don Blackburn, president of Sunnydance Enterprises, received a report indicating that quality costs were 21 percent of sales. Faced with increasing pressures from imported goods, Don resolved to take measures to improve the overall quality of the company's products. After hiring a consultant, the company began, in 2005, an aggressive program of total quality control. At the end of 2008, Don requested an analysis of the progress the company had made in reducing and controlling quality costs. The Accounting Department assembled the following data:
|
|
Sales
|
Prevention
|
Appraisal
|
Internal Failure
|
External Failure
|
|
2004
|
$1,000,000
|
$10,000
|
$20,000
|
$ 80,000
|
$100,000
|
|
2005
|
1,200,000
|
30,000
|
40,000
|
100,000
|
120,000
|
|
2006
|
1,400,000
|
60,000
|
50,000
|
60,000
|
80,000
|
|
2007
|
1,200,000
|
70,000
|
70,000
|
40,000
|
50,000
|
|
2008
|
1,000,000
|
70,000
|
30,000
|
16,000
|
24,000
|
Required
1. Compute the quality costs as a percentage of sales by category and in total for each year.
2. Explain why quality costs increased in total and as a percentage of sales in 2005, the first year of the quality-improvement program.
3. Prepare a multiple-year trend graph for quality costs, both by total costs and by category. Using the graph, assess the progress made in reducing and controlling quality costs. Does the graph provide evidence that quality has improved? Explain.