Xenon Enterprises (XE) Produces Two Extruding Machines That Are Popular

Essay

Xenon Enterprises (XE) produces two extruding machines that are popular with food processors: No. 616 and No. 717. Machine No. 616 has an average selling price of $160,000, whereas No. 717 typically sells for approximately $155,000. The company is extremely focused on quality and has provided the following information:

Required:
a. Classify the preceding costs as prevention, appraisal, internal failure, or external failure.
b. Using the classifications in requirement (1), compute XE’s quality costs for machine No. 616 in dollars and as a percentage of sales revenues. Also calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs.
c. Repeat requirement (b) for machine No. 717.
d. Comment on your findings, noting whether the company is “investing” its quality expenditures differently for the two machines.
e. Quality costs can be classified as observable or hidden. What are hidden quality costs, and how do these costs differ from observable costs?