Cost of Quality Analysis for Parramatta Technologies

This assignment analyzes a cost of quality report for Parramatta Technologies Ltd. It identifies the largest cost categories, including reliability engineering and repair costs under warranty. The analysis suggests that controlling these costs could significantly reduce overall quality expenses. The report also outlines specific cost breakdowns for rework, transportation, and quality training.

Question 1
1.
200 400 600 800 1000 1200 1400 1600
$-
$2,000.00
$4,000.00
$6,000.00
$8,000.00
$10,000.00
$12,000.00
$14,000.00
$16,000.00
$18,000.00
Administrative Costs
Relevent Range
2. High-low method
Equation
3. Calculation of Administrative cost

4. Regression analysis
a) Equation with patient load predicting administrative cost
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.998827319
R Square 0.997656012
Adjusted R Square 0.997442923
Standard Error 1515.228131
Observations 13
ANOVA
df SS MS F
Significanc
e F
Regressio
n 1 10749152613
1.07E+1
0
4681.8
6
8.0644E-
16
Residual 11 25255079.16
229591
6
Total 12 10774407692
Coefficient
s
Standard
Error t Stat P-value Lower 95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 94.932543 495.2976484
0.19166
8
0.8514
9
-
995.21023
1185.07
5
-
995.21023 1185.08
X 10.695682 0.156314552 68.4241
8.1E-
16
10.351636
4
11.0397
3
10.351636
4 11.0397
b. Calculation of administrative cost

c. Equation with patient load and number of emergency procedures predicting
administrative cost
SUMMAR
Y OUTPUT
Regression Statistics
Multiple R
0.96396326
9
R Square
0.92922518
4
Adjusted R Square
0.91349744
8
Standard Error
972.745121
3
Observations 12
ANOVA
df SS MS F
Significanc
e F
Regressio
n 2 111810569
5590528
5
59.081
9 6.675E-06
Residual 9
8516097.63
9
946233.
1
Total 11
120326666.
7
Coefficien
ts
Standard
Error t Stat
P-
value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept
1769.331
1
1029.32767
5
1.71891
9
0.1197
5
-
559.16984
4097.83
2
-
559.16984
4097.8
3
Number
of
emergenc
y
procedur
es
148.5074
1
122.090621
4 1.21637
0.2547
8
-
127.68076
4
424.695
6
-
127.68076
424.69
6

Patient
load
7.101339
5 0.92974801
7.63791
8
3.2E-
05
4.9981033
7
9.20457
6
4.9981033
7
9.2045
8
d. Calculation of administrative cost
5. Yes, the inclusion of additional variable improves the results when standard error becomes
higher due to inclusion. In the present case, the standard error for the patient load becomes
higher due to the inclusion of the number of emergency procedures as one more independent
variable hence it can be concluded that inclusion of additional cost driver improves the
model.
6. The high low method only considers the ingest and lowest value of cost driver and data
values related to that Cost driver on the other hand regression analysis considers all data
values (Bamber et al., 2008). Therefore in making a comparison between regression and high
low method it can be concluded that regression model can provide more significant results.
Moreover, in the part %, it was concluded that multiple regression improves the model.
Hence McDonough should be highest confident towards multiple regression analysis and
lowest confident about the high low model.

Question 2
1. Calculation of required amounts
a. Equivalent units for material and conversion
Physica
l flow
Equivalent units
Leather strips
Equivalent
units Buckles
Equivalent units
Conversion
costs
Units completed and transferred out 8100 8100 8100 8100
Units in process, 30 Oct 400 400 400 160
Total units to accounted for 8500 8500 8500 8260
b. Cost per equivalent unit for material and conversion
Material Conversion
costs Total
Cost to be accounted for Leather strips Buckles
Cost of Units in process, 1 Oct $1,650.00 $350.00 $2,500.00 $4,500.00
Costs added during August $41,000.00 $8,000.00 $55,320.00 $104,320.00
Total cost $42,650.00 $8,350.00 $57,820.00 $108,820.00
Total units to accounted for 8,500 8,500 8,260
Cost per unit $5.02 $0.98 $7.00 $13.00
c. Production cost of ending inventory and finished units transferred during the October
Cost of units transferred out Leather strips Buckles Conversion costs Total
Number of Equivalent units 8100 8100 8100
Per Equivalent Unit cost $5.02 $0.98 $7.00
Cost of units transferred out $40,642.94 $7,957.06 $56,700.00 $105,300.00

cost of ending WIP inventory Leather strips Buckles Conversion costs Total
Number of Equivalent units 400 400 160
Per Equivalent Unit cost $5.02 $0.98 $ 7.00
Cost of WIP inventory 30 Oct $2,007.06 $392.94 $1,120.00 $3,520.00
d. Weighted average unit cot for completed unit
Units completed and transferred out 8,100
Cost of units transferred out $ 105,300.00
Unit cost $ 13.00
2. In the present case cost per belt used by the company for planning and control is $11.5 on
the other hand actual cost per unit is $13. The company needs to compare this standard
cost i.e. $11.5 per unit with the actual cost per unit i.e. $13 per unit and should find the
reasons behind the excess cost. Such reason may be related to material or conversion
costs.

Question 3
1. Manufacturing Overhead cost using A Frame
a. Predetermined plant wide rate based on direct labor hours
Total plant
Budgeted manufacturing overhead $ 180,000.00
Budgeted direct labor hours 45000
Predetermined plant wide rate $ 4.00
b. Predetermined plant wide rate based on machine hours
Total plant
Budgeted manufacturing overhead $ 180,000.00
Budgeted machine hours 120000
Predetermined plant wide rate $ 1.50
c. Predetermined departmental rate
Cutting Department Welding Department
Budgeted manufacturing overhead $ 60,000.00 $ 120,000.00
Budgeted machine hours $ 96,000.00
Budgeted direct labor hours 30000
Predetermined departmental rate $ 2.00 $ 1.25
2. The third estimate i.e. department wide overhead rate is the most appropriate method.
This method considered direct labor hours for cutting department which is a better cost
driver for this department because it is a labor intensive department. As well as this

method considered machine hours for welding department which is a better cost driver
for this department because it is machine intensive department.
3. Actual manufacturing cost using department wide rate
Cutting Department Welding Department
Actual manufacturing overhead $ 54,000.00 $ 108,000.00
Actual machine hours 90000
Actual direct labor hours 29400
Actual departmental rate $ 1.84 $ 1.20
Production requirement for A Frame
Machine hours 4
Direct labor hours 4
actual manufacturing overhead cost of A Frame $ 7.35 $ 4.80
Total $ 12.15
Cost drivers are essential for the determination of cost for each allocated hence for cost drivers
must be used in the actual and normal costing system.
4. Predetermined departmental rates use overhead rates based on the budgeted data and
actual departmental rates use overhead rates based on the actual data. The predetermined
departmental rate is more accurate than the actual departmental rate because
predetermined departmental rate provides uniform and realistic manner.

Question 4
1. Calculation of Activity rates
Activity Activity cost Activity driver
Quantit
y Activity rates
Interview salaried client $60,000.00
No. of wage and salary
clients 8000 $ 7.50
Interview business
client $75,000.00 No. of business clients 2000 $ 37.50
Obtain missing data $600,000.00 No. of follow-up calls 8000 $ 75.00
Input data $120,000.00 No. of data entries 400000 $ 0.30
Print return $90,000.00 No. of returns 10000 $ 9.00
Verify return with client $180,000.00 No. of hours 6000 $ 30.00
Rectify errors $90,000.00 No. of errors 6000 $ 15.00
Submit return $30,000.00 No. of returns 10000 $ 3.00
2. Cost of return preparation
a. Wage and salary tax return
Activity driver Quantity Activity Activity rates Activity cost
No. of wage and salary clients 1 Interview salaried client $7.50 $7.50
No. of data entries 20 Input data $0.30 $6.00
No. of returns 1 Print return $9.00 $9.00
No. of hours 0.375 Verify return with client $30.00 $11.25
No. of returns 1 Submit return $3.00 $3.00
Total activity cost $36.75

b. Business tax return
Activity driver Quantity Activity activity rates Activity cost
No. of business clients 1 Interview business client $ 37.50 $ 37.50
No. of follow-up calls 4 Obtain missing data $ 75.00 $ 300.00
No. of data entries 120 Input data $ 0.30 $ 36.00
No. of returns 1 Print return $ 9.00 $ 9.00
No. of hours 0.5 Verify return with client $ 30.00 $ 15.00
No. of errors 3 Rectify errors $ 15.00 $ 45.00
No. of returns 1 Submit return $ 3.00 $ 3.00
Total activity cost $ 445.50
3. Firm’s pricing policy is not appropriate. Overestimation and underestimation of price
determination by firm is as follows,
Price determined Price as per activity costing
Wage and salary tax return $ 60.00 $ 36.75 Over estimation
Business tax return $ 300.00 $ 445.50 Under estimation
Question 5
1. Budgeted cash receipts
Collections from sales in November $ 76,000.00
Collection from sales in December $ 132,000.00
Total $ 208,000.00
2. Budgeted profit and loss statement
Sales $ 220,000.00
Cost of goods sold $ 165,000.00
Gross profit $ 55,000.00
Less expenses
Bad debt expense $ 4,400.00
Depreciation $ 18,000.00
Monthly expenses $ 22,600.00
Total expenses $ 45,000.00
Net profit $ 10,000.00
3. Projected account balance
Accounts payable November balance $ 162,000.00

Less: Repaid in December $ (162,000.00)
Add: Credit purchases in December
For December sale $ 33,000.00
For January sale $ 120,000.00
Accounts payable December balance $ 153,000.00
Question 6
a. Direct method
Provider of services
department
Customer service
department Total
Human
resource Computing Deposit Loans
Costs prior to allocation $720,000 $1,200,000 $1,920,000
Allocation of human resources 50.0% 30.0% 80.0%
Percentage 62.5% 37.5% 100.0%
Allocation of cost
$(720,000
) $450,000 $270,000 $ -
Allocation of computing 60% 20% 80%
Percentage 75% 25% 100%
Allocation of cost $ (1,200,000) $900,000 $300,000 $ -
Total $ - $ -
$1,350,00
0 $570,000 $1,920,000
b. Step down method
Provider of services
department
Customer service
department Total
Human Computing Deposit Loans

resource
Costs prior to allocation $720,000 $ 1,200,000 $ 1,920,000
Allocation of human resources 20% 50.0% 30.0% 100.0%
Percentage 20% 50.0% 30.0% 80.0%
Allocation of cost
$
(720,000) $ 144,000 $360,000 $216,000 $ -
Allocation of computing 60% 20% 80%
Percentage 75% 25% 100%
Allocation of cost $ (1,344,000) $1,008,000 $336,000 $ -
Total $ - $ - $1,368,000 $552,000 $ 1,920,000
c. Reciprocal services method
Let H is cost of human resource department and C is cost of computing department then
equations for total cost of these departments will be,
Putting value of H in equation of C
Provider of services
department
Customer service
department Total
Human
resource Computing Deposit Loans
Costs prior to allocation $720,000 $ 1,200,000 $ 1,920,000
Allocation of human resources 20% 50.0% 30.0% 100.0%
Allocation of cost
$(1,000,000
) $ 200,000 $ 500,000 $ 300,000 $ -
Allocation of computing 20% 60% 20% 100%
Allocation of cost $280,000 $ (1,400,000) $ 840,000 $ 280,000 $ -
Total $ - $ - $ 1,340,000 $ 580,000 $ 1,920,000

Question 7
1. Objective function and constraints
Maximize: 60I+45P
Subject to
2I+1P≤60
2I+3P≤120
I≤45
I≥0
P≥0
2. Graph

0 10 20 30 40 50 60 70
0
20
40
60
80
100
120
2I+1P≤60
2I+3P≤120
I≤45
Indian Cuisine
P
o
r
t
u
g
u
e
s
e
C
u
i
s
i
n
e
optimal
area
3. Determination of optimal solution
In the above graph, I≤45 is a non-determining constraint and remaining determining
constraints presented by line 2I+1P≤60 and 2I+3P≤120. Intersect point is (15,30) hence
optimal solution is,
I=15 and P=30
4. Value of objective function
Objective function is, Maximize: 60I+45P and optimal solution is I=15 and P=30 hence
value of objective function will be,
(60*15)+(45*30)= 900+1350 =2250
Hence contribution margin to an optimal solution is $2,250.

Question 8
1. Cost of quality report
Cost of quality %
Warranty costs
Repair cost $ 67,200.00 15.28%
Reliability engineering $ 240,000.00 54.56%
Total Warranty costs $ 307,200.00 69.83%
Rework at PTL's manufacturing plant
Rework cost $ 53,200.00 12.09%
Manufacturing inspection $ 15,000.00 3.41%
Total Rework at PTL's manufacturing plant $ 68,200.00 15.50%
Transportation costs $ 29,500.00 6.71%

Quality training $ 35,000.00 7.96%
Total quality cost $ 439,900.00 100%
2. For Parramatta Technologies Ltd, the largest costs are Reliability engineering under
warranty costs (54.56%) and repair cost under warrant cost (15.28%). If these costs can
be controlled by the organization then other quality costs of the company are only
$132,700. Hence company needs to look forward to reducing and eliminate warranty
costs.
Bibliography
Bamber, L.S., Braun, K.W. & Harrison, W.T., 2008. Managerial Accounting. Pearson Education
India, 2008.