Long-Term Performance Report

Nabors Company had actual quality costs for the year ended June 30, 20×5, as given below. Prevention costs:    Prototype inspection $ 380,000    Vendor certification 760,000      Total prevention costs $ 1,140,000 Appraisal costs:    Process acceptance $ 395,000    Test labor 440,000      Total Appraisal costs $ 835,000 Internal failure costs:    Retesting $ 227,500    Rework 455,000      Total internal failure costs $ 682,500 External failure costs:    Recalls $ 232,000    Product liability 462,500      Total external failure costs $ 694,500 Total quality costs $3,352,000

At the zero-defect state, Nabors expects to spend $475,000 on quality engineering, $95,000 on vendor certification, and $80,000 on packaging inspection. Assume sales to be $3,000,000.


1. Prepare a long-range performance report for 20×5. Enter all answers as positive amounts. If the budget variance amount is unfavorable select “Unfavorable” in the last column of the table. Select “Favorable” if it is favorable. Round percentage answers to two decimal places, if rounding is required. For example, 5.789% would be entered as “5.79”. Enter “0” as the target cost amount if there would be no cost at the zero-defect state. Nabors Company Long-Range Performance Report For the Year Ended June 30, 20×5 Actual Costs Target Costs Budget Variance Favorable; or Unfavorable Prevention costs:

(Packaging inspection, product liability, prototype inspection, recalls or retesting) $ $ $

(Packaging inspection, product liability, recalls, vendor certification or retesting) Total prevention costs $ $ $ Appraisal costs:

(process acceptance, product liability, quality engineering, recalls or retesting) $ $ $ (product liability, quality engineering, recalls, retesting, or test labor) Total appraisal costs $ $ $ Internal failure costs: (packaging inspection, product liability, quality engineering, recalls, or retesting, $ $ (packaging inspection, product liability, quality engineering, recalls, or rework) Total internal failure costs $ $ External failure costs: (packaging inspection, quality engineering, recalls, retesting or rework) $ $ (packaging inspection,product liability, quality engineering, retesting or rework) Total external failure costs $ $ Total quality costs $ $ $ Percentage of sales % % %

2. Why are quality costs still present for the zero-defect state?

(1. Inefficiencies mean that some defects will still occur. 2. Prevention costs are value-added costs that are necessary to maintain the quality gains. OR Some non-value -cost will still persist, even at the zero-defect state)

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