【正文】 for example, test labor is ($8,000/ $600,000) ? $750,000 = $10,000]. 326 14–7 Concluded 3. Prevention and some appraisal costs can be interpreted as valueadded costs. All failure costs are nonvalueadded. Thus, the distribution of costs for 2020 cannot all be valueadded (there are nonzero internal failure costs). If they were, then the variances would be the nonvalueadded costs being incurred in 2020. 4. There would be a $77,750 increase in profits in 2020 if total quality costs are % of sales and the targeted distribution is achieved (the $77,750 increase is the savings reported in the longrange performance report in Requirement 2). 14–8 1. Prevention 2. Prevention 3. Internal failure 4. External failure (societal) 5. Detection 6. Prevention 7. Internal failure 8. External failure (societal) 9. Detection 10. External failure (societal) 11. Prevention 12. External failure (private) 13. Internal failure 14. Detection 15. Internal failure 16. Detection 327 14–9 1. Hender Chemicals Environmental Cost Report For the Year Ended December 31, 2020 Environmental Costs Percentage* Prevention costs: Evaluating suppliers........................ $ 120,000 Recycling products ......................... 75,000 $ 195,000 % Detection costs: Inspecting products/processes ... $ 600,000 Developing perf. measures............ 60,000 660,000 Internal failure costs: ........................ Treating toxic waste $ 4,800,000 .......................Operating equipment 840,000 ........................... Licensing facilities 360,0006,000,000 External failure costs: ................................... Settling claims $ 1,200,000 .................................. Cleanup of soil 1,800,000 3,000,000 Totals ....................................................... $ 9,855,000 % *Of operating costs: $60,000,000. 2. R e la t iv e Dis t ribu t ion : Env iron me nt a l Co s t sP re v e nt i on2%I nt e rna l Fail ure61%D e t e c t i on7%E x t e rna l Fail ure30% 328 This distribution reveals that the pany is paying little attention to preventing and detecting environmental costs. To improve environmental performance, much more needs to be invested in the prevention and detection categories. 14–10 1. Both items should be added to the external failure costs category in the report. The first item would add $525,000 and is a private cost. The second adds $1,200,000 and is a societal cost. Under a full costing regime, the $1,200,000 should also be included in the report. Often, however, only private costs will be included. 2. Hender caused the opportunity cost, and many would argue that it should be disclosed. Whether it will voluntarily disclose this cost is questionable. Management would likely feel that such disclosure would draw unfavorable attention to the pany and damage its image. Perhaps if the disclosure is coupled with an announcement of the cleanup of the river and lake, then it could be turned to the advantage of the pany: ―We are undertaking a cleanup, and one of the major benefits to the munity is the restoration of the fishing and recreational opportunities worth $1,200,000 to the munity.‖ 329 PROBLEMS 14–11 1. Lost contribution margin = $8 ? 100,000 = $800,000 or $200,000 per quarter Sales revenue/Quarter = $92 ? 25,000 = $2,300,000 Percent of sales needed to regain lost contribution margin: $200,000/$2,300,000 = % At 1% gain per quarter, quarters, or a little over two years would be needed to regain former profitability. 2. At the end of three years, quality costs will be 4% of sales, a reduction equal to 12% of sales. Savings = ? $92 ? 100,000 = $1,104,000 Increase in unit contribution margin = $1,104,000/100,000 = $ Projected unit CM = $ + ($92 – $90) = $ Projected total CM at $92 price = $ ? 100,000 = $1,304,000 Price decreases: $: Total CM = $ ? 110,000 = $1,324,400 $: Total CM = $ ? 120,000 = $1,324,800 $: Total CM = $ ? 130,000 = $1,305,200 Remended decrease is from $92 to $90. Increase in contribution margin: $ 1,324,800 (1,304,000) $ 20,800 330 14–11 Concluded 3. To find the point where the price should first be reduced, we need to find the point where total contribution margin remains unchanged. Let X = CM/Unit. Current CM = 100,000X New CM = 110,000(X – $1) 100,000X = 110,000(X – $1) 10,000X = $110,000 X = $11 When the unit CM is greater than $11, the price should be reduced by $. To find this point in time: Current CM = $92 – $90 = $2 Gain needed = $11 – $2 = $9 Annual CM needed = $900,000 ($9 ? 100,000) Quarterly CM needed = $900,000/4 = $225,000 Quarterly percent of sales needed = $225,000/$2,300,000 = % At 1% per quarter, it will take quarters to gain $9 per unit. Thus, after quarters, the price can decrease by $1. 4. The difference is longrun versus shortrun thinking. The marketing manager had a strategic orientation. We can see the value of cost information, particularly quality cost information, in strategic decision making. In fact, the emphasis on total quality control and the identification of specific quality costs drove the decision. Once the decision was made, the need to reduce the costs as planned is critical, emphasizing the importance of a quality cost control program. Interim and longerrange reports would be quite useful in controlling quality costs. 331 14–12 1. Quality Costs Percentage of Sales Prevention costs: .......................... Quality training $ 30,000 % Appraisal costs: ................ Pr