Versatile Electrics manufactures electrical instruments for a variety of purposes.

The following costs, related to main

Inspection of electrical components purchased from outside suppl $24,000
Costs of rework on faulty instruments 38,000
Replacement of instruments already sold that were still covered 85,000
Costs of defective parts that cannot be salvaged 12,200
Training of quality control inspectors 10,000
Tests of instruments before sales 20,000
1. Prepare a cost of quality report similar to the report shown in Exhibit 16.11.
Current month's cos
Internal failure costs
Costs of rework on faulty instruments 38,000
Costs of defective parts that cannot be salvaged 12,200
Total internal failure costs $50,200
External failure costs
Replacement of instruments already sold that were still covered 85,000
Total external failure costs $85,000
Appraisal costs
Inspection of electrical components purchased from outside suppl $24,000
Tests of instruments before sales 20,000
Total appraisal costs $44,000
Prevention costs
Training of quality control inspectors 10,000
Total prevention costs $10,000
Total quality costs $189,200

2. How do you think management should react to the relative size of the four categories of quality costs?
3. Do you think that Versatile Electrics has identified all of its external failure costs? Explain.
oses. The following costs, related to maintaining product quality, were incurred in May:

Percentage of total

20.08%
6.45%
26.53%

44.93%
44.93%

12.68%
10.57%
23.26%

5.29%
5.29%
100%

he four categories of quality costs?

failure costs? Explain.
 Month
1 2
Throughput time
Manufacturing cycle efficiency
Delivery cycle time
Percentage of on-time deliveries 72% 73%
Total sales (units) 10,540 10,570

Month
1 2
Move time per unit, in days 0.5 0.5
Process time per unit, in days 0.6 0.5
Wait time per order before start of production, in days 9.6 8.7
Queue time per unit, in days 3.6 3.6
Inspection time per unit, in days 0.7 0.7
b. The manufacturing cycle efficiency (MCE).
c. The delivery cycle time.
Throughput time = Process time + Inspection time + Move time + Queue time
MCE= Value-added time/ Throughput time
Delivery cycle time = Wait time + Throughput time
Month
1 2
Throughput time 5.4 5.3
Manufacturing cycle efficiency 0.1 0.09
Delivery cycle time 15 14
Percentage of on-time deliveries 72% 73%
Total sales (units) 10,540 10,570
2. Using the performance measures given in the problem and those you computed in (1) above, identify wh
What
Even areas
thoughapparently requirehas
the company improvement
improved and how might they
its operations, be improved?
it has not yet increased its sales. This m
However, it may be time now to exploit these improvements to go after more sales—perhaps by increased product
3. Refer to the move time, process time, and so forth, given for month 4.
a. Assume that in month 5 the move time, process time, and so forth, are the same as for month 4, except t
Month
5
Process time per unit, in days 0.4
Inspection time per unit, in days 0.3
Move time per unit, in days 0.5
Throughput time 1.2
MCE 0.3
b. Assume that in month 6 the move time, process time, and so forth, are the same as for month 4, except t
Month
 6
Process time per unit, in days 0.4
Move time per unit, in days 0.5
Throughput time 0.9
MCE 0.4
 Month
3 4

78% 85%
10,550 10,490

Month
3 4
0.4 0.5
0.5 0.4
5.3 4.7
2.6 1.7
0.4 0.3

Month
3 4
3.9 2.9
0.13 0.14
9.2 7.6
78% 85%
10,550 10,490
puted in (1) above, identify whether the trend over the four months is generally favorable, generally unfavorable, or mix
?
increased its sales. This may have happened because management attention has been focused on the factory—work
—perhaps by increased product promotion and better marketing strategies. It will ultimately be necessary to increase sales so a

same as for month 4, except that through the implementation of Lean Production, the company is able to completely e

same as for month 4, except that the company is able to completely eliminate both the queue time during production a
rally unfavorable, or mixed.
sed on the factory—working to improve operations.
ary to increase sales so as to translate the operational improvements into more profits.

y is able to completely eliminate the queue time during production. Compute the new throughput time and MCE.

ime during production and the inspection time. Compute the new throughput time and MCE.
put time and MCE.
Customer- driven activities Cost driver Cost driver rate
Sales activity Sales visits $2,000
Order taking Purchase order 400
Special handling Units handled 100
Special shipping Shipments 1,000
Cost driver data for two of Feather Light’s major customers for the most recent year are as follows:
Customer- driven activities CaesarStream NeroCom
Sales activity 8 6 sales visits
Order taking 15 20 purchase orders
Special handling 800 600 units handled
Special shipping 18 20 shipments
The following data relates to those two customers:
CaesarStream NeroCom
Sales revenue $380,000 $247,600
Cost of goods sold 160,000 124,000
General selling costs 48,000 36,000
General administrative costs 38,000 32,000

1. Prepare a customer profitability analysis for CaesarStream and NeroCom

CaesarStream NeroCom Total
Sales revenue $380,000 $247,600 $627,600
Cost of goods sold 160,000 124,000 284,000
Gross margin $220,000 $123,600 $343,600
Selling and administrative costs:
General selling costs 48,000 36,000 84,000
General administrative costs 38,000 32,000 70,000
Total selling and administrative cos 86,000 68,000 154,000
Customer costs
Sales activity $16,000 $12,000 $28,000
Order taking 6,000 8,000 14,000
Special handling 80,000 60,000 140,000
Special shipping 18,000 20,000 38,000
Total customer costs $120,000 $100,000 $220,000
Contribution to company profits $14,000 -$44,400 -$30,400
% contribution -46% 146%
2. Prepare a customer profitability graph, similar to the one in Exhibit 15.14, for the two customers
20000

10000

0
Contribution to company profits
-10000 $14,000
-$44,400
-20000 -$30,400
-30000

-40000
 20000

10000

0
Contribution to company profits
-10000 $14,000
-$44,400
-20000 -$30,400
-30000

-40000

-50000

3. Comment on the relative profitability of the two customers.

4. Construct an Excel spreadsheet to solve requirement 1. Show how the solution will change if CaesarStre
CaesarStream NeroCom Total
Sales revenue $250,000 $247,600 $497,600
Cost of goods sold 160,000 155,000 315,000
Gross margin 90,000 92,600 182,600
Selling and administrative costs:
General selling costs 48,000 36,000 84,000
General administrative costs 38,000 32,000 70,000
Total selling and administrative cos 86,000 68,000 154,000
Customer costs
Sales activity $16,000 $12,000 $28,000
Order taking 6,000 8,000 14,000
Special handling 80,000 60,000 140,000
Special shipping 18,000 20,000 38,000
Total customer costs $120,000 $100,000 $220,000
Contribution to company profits -$116,000 -$212,400 -$328,400
% contribution 35% 65%
year are as follows:

14, for the two customers

CaesarStream
NeroCom
Total
solution will change if CaesarStream’s sales revenue is $250.000 and NeroCom’s cost of goods sold is $155.000.
s sold is $155.000.