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Managerial Accounting

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Cost of External Failure Quality-% Sales

MGRACT-OPNSWU

At the beginning of the year, Donpo Company initiated a quality improvement program. To help assess the impact of the quality improvement program, the following data were collected for the current and preceding years:

Annual data Last Year This Year
Sales \$2,000,000 \$2,000,000
Quality circles \$9000 \$10,000
Packaging inspections \$20,000 \$32,000
Product scrapped \$100,000 \$90,000
Lost sales from customer complaints \$180,000 \$160,000
Production downtime \$10,000 \$12,000
Product warranty claims \$36,000 \$24,000

For this year, what is the external failure cost as a percent of sales?