Nabors Company had actual quality costs for the year ended

Nabors Company had actual quality costs for the year ended June 30, 20×5, as given below.

Prevention costs:
   Prototype inspection $ 240,000
   Vendor certification 480,000
     Total prevention costs $ 720,000
Appraisal costs:
   Process acceptance $ 255,000
   Test labor 300,000
     Total Appraisal costs $555,000
Internal failure costs:
   Retesting $ 157,500
   Rework 315,000
     Total internal failure costs $ 472,500
External failure costs:
   Recalls $ 303,750
   Product liability 560,500
     Total external failure costs $ 864,250
Total quality costs $2,611,750

At the zero-defect state, Nabors expects to spend $300,000 on quality engineering, $60,000 on vendor certification, and $70,000 on packaging inspection. Assume sales to be $2,800,000.


1. Prepare a long-range performance report for 20×5. Enter all answers as positive amounts. If the budget variance amount is unfavorable select “Unfavorable” in the last column of the table. Select “Favorable” if it is favorable. Round percentage answers to two decimal places, if rounding is required. For example, 5.789% would be entered as “5.79”. Enter “0” as the target cost amount if there would be no cost at the zero-defect state.

Nabors Company
Long-Range Performance Report
For the Year Ended June 30, 20×5
Actual Costs Target Costs Budget Variance Favorable; or Unfavorable
Prevention costs:
$ $ $
Total prevention costs $ $ $
Appraisal costs:
$ $ $
Total appraisal costs $ $ $
Internal failure costs:
$ $
Total internal failure costs $ $
External failure costs:
$ $
Total external failure costs $ $
Total quality costs $ $ $
Percentage of sales % % %

2. Why are quality costs still present for the zero-defect state?

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