Cost Accounting – Homework 7

Problem 1 – The Door Company manufactures doors.  Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs. 

a.    Retesting of reworked products

b.    Downtime due to quality problems

c.    Analysis of the cause of defects in production

d.    Depreciation of test equipment

e.    Warranty repairs

f.     Lost sales arising from a reputation for poor quality

g.    Quality circles

h.    Rework direct manufacturing labor and overhead

i.     Net cost of spoilage

j.     Technical support provided to suppliers

k.    Audits of the effectiveness of the quality system

l.     Plant utilities in the inspection area

m.   Reentering data because of keypunch errors

Problem 2 –  For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly.  A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity method and its supporting decision elements.  She has gathered the following information:

250

10

Annual demand in units		250
Days used per year
Lead time, in days
Ordering costs	$100
Annual unit carrying costs	$20

Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs.