Backwoods American, Inc., produces expensive waterrepellent, down-lined parkas.

ID: 404482 • Letter: B

Question

Backwoods American, Inc., produces expensive waterrepellent,

down-lined parkas. The company implemented

a total quality-management program in 2005.

Following are quality-related accounting data that have

been accumulated for the five-year period after the

programs start.

Year

2006 2007 2008 2009 2010

Quality Costs (000s)

Prevention $3.2 10.7 28.3 42.6 50.0

Appraisal 26.3 29.2 30.6 24.1 19.6

Internal failure 39.1 51.3 48.4 35.9 32.1

External failure 118.6 110.5 105.2 91.3 65.2

Accounting Measures (000s)

Sales $2,700.6 2,690.1 2,705.3 2,310.2 2,880.7

Manufacturing

cost 420.9 423.4 424.7 436.1 435.5

a. Compute the companys total failure costs as a percentage

of total quality costs for each of the five years.

Does there appear to be a trend to this result? If so,

speculate on what might have caused the trend.

b. Compute prevention costs and appraisal costs, each

as a percentage of total costs, during each of the five

years. Speculate on what the companys quality strategy

appears to be.

c. Compute quality-sales indices and quality-cost indices

for each of the five years. Is it possible to assess the

effectiveness of the companys quality-management

program from these index values?

d. List several examples of each quality-related costthat

is, prevention, appraisal, and internal and external failure

that might result from the production of parkas.

Backwoods American, Inc., produces expensive waterrepellent, down-lined parkas.

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