Assignment task:
Little Feet Cradles Enterprises is based in Mount Wellington. At a recent seminar on "Strategic Cost Reduction", Shan Smith, the management accountant of Little Feet Cradles Enterprises, was told that most organisations that are not focused on quality find that poor quality costs them around 22% of their sales revenue. Shan is not sure what percentage of sales Little Feet Cradles Enterprises' quality costs are, but he doesn't think they are very high. However, just to be sure, he decides to prepare a report on the firm's quality costs. After some investigation, Shan ascertains the following information for the past year:
1. The revenue obtained from sales was $6,150,000 and the profit made was $650,000.
2. The company employs staff to inspect the final product at a cost of $100,000 per annum.
3. The company has paid out $20,000 in warranty claims.
4. The cost of the quality-related scrap produced in a year is estimated to be $187,500.
5. The cost of the maintenance of equipment used for testing and inspecting products was $30,000.
6. Shan estimates that $112,500 of the inspected final product requires to be reworked.
7. Over the last year the company has lost $63,000 in cancelled