Question

You are given the following environmental quality-related costs:

Employee training	$	180,000
Product design		220,000
Supplier certification		80,000
Process inspection		360,000
Depreciation—pollution-control equipment		480,000
Maintain pollution-control equipment		280,000
Clean up polluted lake		580,000
Restore land after use		780,000
Property damage claim		680,000

Required:

1. Prepare a cost-of-quality (COQ) report of environmental management for the year. Determine subtotals for each of the four reporting categories, and express each subtotal as a percentage of total operating expenses ($10,000,000) for the year. (Hint: Classify the pollution-control costs as internal failure costs, under the assumption that the process pollutes and that the pollution-control equipment used by the company controls the release of pollutants into the environment.) (Round your percentage answers to 1 decimal place.)

Answer 1

Answer :

• Cost of Quality (COQ) Report

		Amount	Total Operatinng cost %
Prevention Cost :
	Employee Training	$1,80,000
	Product Design	$2,20,000
	Supplier Certification	$80,000
A.		$4,80,000	4.8%
Appraisal Costs :
	Process Inspection	$3,60,000
B.		$3,60,000	3.6%
Internal Failure Costs :
	Depreciation-Pollution Control Equipment	$4,80,000
	Maintaining Pollution Control Equipment	$2,80,000
C.		$7,60,000	7.6%
External Failure Costs :
	Clean up polluted Lake	$5,80,000
	Restore Land after use	$7,80,000
	Property Damage Claim	$6,80,000
D.		$20,40,000	20.4%
	Total ( A + B + C + D )
		$4,80,000
		$3,60,000
		$7,60,000
		$20,40,000
	Total	$36,40,000

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