Page | 1

AGENDA: MANAGERIAL ACCOUNTING AND COST

CONCEPTS
A. Cost classifications for:
1. Financial statement preparation.
2. Predicting cost behavior.
3. Assigning costs to cost objects.
4. Making decisions
B. Least-squares regression computations using Microsoft Excel.
C. Cost of Quality.
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THE PLANNING AND CONTROL CYCLE

He who fails to plan, plans to fail
Planning is the most basic of all managerial functions. Planning involves
selecting from a number of alternative courses of action the means of
achieving specified goals or objectives. All other managerial functions
such as organizing, staffing, controlling, etc. are based upon the
attainment of goals according to plans.
Planning involves selecting not only the companys objectives, but also
the means of reaching them. This type of approach cannot take place in a
vacuum. Good planning must consider the nature of the future in which
planning decisions and actions are intended to operate.
Planning is answering, in advance, the questions: what to do, how to do
it, when to do it, and who is going to do it? Planning bridges the gap
from where we are to where we want to go. Without planning, events are
left to chance.
There are four major reasons to plan:
To offset uncertainty and change. Change is accelerating based on new
technologies that impact one another. Business is becoming more complex due
to more external regulations. Change and complexity create this uncertainty.
To focus attention on objectives. Your company is more efficient because you
have determined where you want to go and then focus on getting there.
To gain economical operations. Resources are allocated effectively to achieve
your goals.
To facilitate control. There is an implied risk and lack of control in not
planning. You and your company are left to the mercy of chance.

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Department Budget Actual Variance
Food
Bakery 1,100 $ 1,050 $ (50) $
Meat 2,500 2,700 200
Fish 1,500 1,750 250
Dairy 1,500 1,500 -
Total food 6,600 7,000 400
Labor
Manager and chef 2,000 2,000 -
Counter 800 1,000 200
Total labor 2,800 3,000 200
Total Sandwich Costs 9,400 $ 10,000 $ 600 $
Number of Sandwiches sold 4,100 4,100 -
Danny's Sandwich Shop
Store Budget versus Actual
October 31, 2010

Possible Questions:
Why were costs higher if we sold the budgeted amount of
sandwiches?
Why are costs of meat, fish and counter labor so high? And will
this continue?
Was there excess waste of meat and fish?
Did the cost per pound rise suddenly?
Were customers given larger portions than expected?
Was there overtime required for counter staff?

Page | 4
Why Plan?
Some business executives have made some of the following
comments regarding planning:
too much of a hassle
a waste of time
plans are never any good because they always change
The net result is that theyre saying: we dont want to think
about our business and what it is, where its going and what we
can do about it! Planning is a part of business and should never
be considered a waste of time or a hassle. Plans can and possibly
should change as our model, or paradigm, of future events
changes. An example of what will happen with that thought
process is seen is a paradigm-shifting experience as told by
Frank Koch in Proceedings, the magazine of the Naval Institute
i
.
Two battleships assigned to the training squadron had been
at sea on maneuvers in heavy weather for several days. I
was serving on the lead battleship and was on watch on the
bridge as night fell. The visibility was poor with patchy
fog, so the captain remained on the bridge keeping an eye
on all activities.
Shortly after dark, the lookout on the wing of the bridge
reported, Light, bearing on the starboard bow.
Is it steady or moving astern? the captain called out.
The lookout replied, Steady, captain, which meant we
were on a dangerous collision course with that ship.
The captain then called to the signalman, Signal that ship:
We are on a collision course, advise you change course 20
degrees.
Back came a signal, Advisable for you to change course
20 degrees.

i
The 7 Habits of Highly Effective People, Stephen R. Covey, A Fireside Book Published by Simon &
Schuster, 1990.
Page | 5
The captain said, Send, Im a captain, change course 20
degrees.
Im a seaman second class, came the reply. You had
better change course 20 degrees.
By that time, the captain was furious.
He spat out, Send, Im a battleship.
Change course 20 degrees.
Back came the flashing light, Im a
lighthouse.
We changed course.
The planning process is simply a rational
approach to the future. The only things
certain about the future are change and
uncertainty as to its outcome. Planning provides the rudder to
guide the course of the business through the problems and
opportunities of the future. Without planning, a business may be
left to flounder on the sears of uncertainty. A well thought-out
business plan will assist in steering the business.
Plans have a need for flexibility. Since plans are based upon
assumptions, as these assumptions deviate from expectations,
the plan must be updated.
Page | 6
AN OVERVIEW OF COST CLASSIFICATIONS
Purpose of classification Cost classifications
Preparing an income
statement and balance
sheet
Product costs
Direct materials
Direct labor
Manufacturing overhead
Period costs (nonmanufacturing
costs)
Selling costs
Administrative costs
Predicting changes in
cost due to changes in
activity
Variable costs
Fixed costs
Mixed costs
Assigning costs Direct costs
Indirect costs
Making decisions Differential costs
Sunk costs
Opportunity costs

Page | 7
COST CLASSIFICATIONS IN
MANUFACTURING COMPANIES


Page | 8
COST CLASSIFICATIONS TO PREDICT COST
BEHAVIOR
To predict how costs react to changes in activity, costs are often
classified as variable or fixed.
Categories of costs:
Fixed
Semi-fixed (step)
Variable
Semi-variable (mixed)
Dependent variable total cost
Independent variable activity cost driver
Cost structures TC = VC + FC
Less risk cost structures dominated by VC
More risk cost structures dominated by FC
Page | 9
VARIABLE COSTS
Variable cost behavior can be summarized as follows:
Variable Cost Behavior
In Total Per Unit
Total variable cost increases
and decreases in proportion
to changes in activity.
Variable cost per
unit is constant.
EXAMPLE: A company manufactures microwave ovens. Each oven
requires a timing device that costs $30. The cost per unit and the
total cost of the timing device at various levels of activity (i.e.,
number of ovens produced) would be:
Cost per Number of Total Variable
Timing Ovens CostTiming
Device Produced Devices
$30 1 $30
$30 10 $300
$30 100 $3,000
$30 200 $6,000

Costs that change with a change in volume of activity or change
in cost drivers

-
50
100
150
200
250
300
350
400
450
- 5 10 15
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FIXED COSTS
Fixed cost behavior can be summarized as follows:
Fixed Cost Behavior
In Total Per Unit
Total fixed cost is not affected by
changes in activity (i.e., total fixed
cost remains constant even if
activity changes).
Fixed cost per unit
decreases as the activity
level rises and increases as
the activity level falls.
EXAMPLE: Assume again that a company manufactures
microwave ovens. The company pays $9,000 per month to rent
its factory building. The total cost and the cost per unit of rent at
various levels of activity would be:
Rent Cost
per Month
Number of Ovens
Produced
Rent Cost
per Oven
$9,000 1 $9,000
$9,000 10 $900
$9,000 100 $90
$9,000 200 $45
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
- 2 4 6 8 10 12 14 16

Cost that remain unchanged as volume changes within the
relevant range of activity or change in cost driver.
Relevant Range valid within a certain range of activity
Given enough time, there are no fixed costs
Different costs have different relevant ranges

Page | 11
TYPES OF FIXED COSTS
Committed fixed costs relate to investment in plant, equipment,
and basic administrative structure. It is difficult to reduce these
fixed costs in the short-term. Examples include:
Equipment depreciation.
Real estate taxes.
Salaries of key operating personnel.
Discretionary fixed costs arise from annual decisions by
management to spend in certain areas. These costs can often
be reduced in the short-term. Examples include:
Advertising; public relations.
Research; management development programs.
At the dawn of television history there were two distinct paths of
technology experimented with by
researchers. Early inventors attempted to
either build a mechanical television
system based on the technology of Paul
Nipkow's rotating disks; or they
attempted to build an electronic
television system using a cathode ray
tube developed independently in 1907
by English inventor A.A. Campbell-
Swinton and Russian scientist Boris
Rosing. Electronic television systems
worked better and eventual replaced
mechanical systems.
The very first prototype for a plasma display monitor was
invented in July 1964 at the University of Illinois by professors
Donald Bitzer and Gene Slottow, and then graduate student
Robert Willson. However, it was not until after the advent of
digital and other technologies that successful plasma televisions
became possible. According to Wikepedia "a plasma display is
Page | 12
an emissive flat panel display where light is created by
phosphors excited by a plasma discharge between two flat
panels of glass."
Various forms of plasma screens have been in use since 1983.
The first plasma TV screen for general public use was retailed in
1997 by Fujitsu, followed by Phillips and then Pioneer. All were
42 inches in size, and the prices were around $15,000.
LG Electronics PN4500
42PN4500 42-Inch Plasma
720p 600Hz TV (Black)
by LG See the Amazon Page for this brand
4.8 out of 5 stars See all reviews (18 customer reviews)

List Price: $449.99
Price: $439.97

Page | 13

May-June 1932

Page | 14

Page | 15
A GRAPHIC VIEW OF COST BEHAVIOR
100 200
0
$3,000
$6,000
Microwaves produced
Total Variable Cost

100 200
0
$9,000
Microwaves produced
Total Fixed Cost

RELEVANT RANGE
If activity changes enough, fixed costs may change. For example,
if microwave production were doubled, another factory building
might have to be rented.
The relevant range is the range of activity within which the
assumptions that have been made about variable and fixed costs
are valid. For example, the relevant range within which total fixed
factory rent is $9,000 per month might be 1 to 200 microwaves
produced per month.
Range of activity over which the theoretical cost behavior pattern
is assumed to describe actual costs costs may not behave
outside relevant range. Different costs can have different relevant
ranges.

Page | 16
STEP COSTS
Fixed costs over one range of activity and shifts abruptly to a
different level and are fixed in those adjacent ranges of activities.
A cost that increases with volume in steps (semi-fixed cost), i.e.
supervisor (can only handle so many people),
warehouse/manufacturing space.

Fixed costs are referred to as capacity costs as they represent the
resources that provide the capability of making goods and
services.
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Q 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52
Step Costs
Page | 17
MIXED COSTS
A mixed (or semi-variable) cost contains elements of both
variable and fixed costs.
Example: Lori Yang leases an automated photo developer for
$2,500 per year plus 2 per photo developed.

Equation of a straight line: Y = a + bX
Y = $2,500 + $0.02X

Page | 18
SCATTERGRAPH METHOD
As the first step in the analysis of a mixed cost, cost and activity
should be plotted on a scattergraph. This helps to quickly
diagnose the nature of the relation between cost and activity.
Example: Piedmont Wholesale Florists has maintained records of
the number of orders and billing costs in each quarter over the
past several years.
Quarter Number of Orders Billing Costs
Year 11st
1,500
$42,000
2nd
1,900
$46,000
3rd
1,000
$37,000
4th
1,300
$43,000
Year 21st
2,800
$54,000
2nd
1,700
$47,000
3rd
2,100
$51,000
4th
1,100
$42,000
Year 31st
2,000
$48,000
2nd
2,400
$53,000
3rd
2,300
$49,000
These data are plotted on the next page, with the activity
(number of orders) on the horizontal X axis and the cost (billing
costs) on the vertical Y axis.

Page | 19
A COMPLETED SCATTERGRAPH

The relation between the number of orders and the billing cost is
approximately linear. (A straight line that seems to reflect this
basic relation was drawn with a ruler on the scattergraph.)
Because a straight line seems to be a reasonable fit to the data,
we can proceed to estimate the variable and fixed elements of
the cost using one of the following methods.
1. High-low method.
2. Least-squares regression method.

$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
0 500 1,000 1,500 2,000 2,500 3,000
$48,000
Number of Orders
B
i
l
l
i
n
g

C
o
s
t
s
X
Y
Regression Line
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ANALYSIS OF MIXED COSTS: HIGH-LOW
METHOD
EXAMPLE: Kohlson Company has incurred the following shipping
costs over the past eight months:
Units Sold Shipping Cost
January .. 6,000 $66,000
February . 5,000 $65,000
March ..... 7,000 $70,000
April ....... 9,000 $80,000
May ........ 8,000 $76,000
June ....... 10,000 $85,000
July ........ 12,000 $100,000
August .... 11,000 $87,000
With the high-low method, only the periods in which the lowest
activity and the highest activity occurred are used to estimate the
variable and fixed components of the mixed cost.
Units Sold Shipping Cost
High activity level, July .. 12,000 $100,000
Low activity level, February 5,000 65,000
Change ......................... 7,000 $ 35,000
Change in cost $35,000
Variable cost= = =$5 per unit
Change in activity 7,000 units

Fixed cost = Total cost - Variable cost element
= $100,000 - (12,000 units $5 per unit)
= $40,000

The cost formula for shipping cost is:
Y = $40,000 + $5X

Page | 21
EVALUATION OF THE HIGH-LOW METHOD

The high-low method suffers from two major defects:
1. It throws away all but two data points.
2. The periods with the highest and lowest volumes are often
unusual (outliers).

.
$0
$20,000
$40,000
$60,000
$80,000
$100,000
0 2,000 4,000 6,000 8,000 10,000 12,000
Units Sold
S
h
i
p
p
i
n
g

C
o
s
t
s
Y
X
Variable
Cost
$5/unit
Fixed
Cost
$40,000
low level
of
activity
high
level of
activity
Page | 22
LEAST-SQUARES REGRESSION METHOD
The least-squares regression method for analyzing mixed costs
uses mathematical formulas to determine the regression line that
minimizes the sum of the squared errors.


Page | 23
LEAST-SQUARES REGRESSION (continued)
Example: Montrose Hospital operates a cafeteria for employees.
Management would like to know how cafeteria costs are affected
by the number of meals served.
Meals Served X Total Cost Y
April ......... 4,000 $9,500
May ......... 1,000 $4,000
June ......... 3,000 $8,000
July .......... 5,000 $10,000
August ..... 10,000 $19,500
September 7,000 $14,000
Statistical software or a spreadsheet program can do the
computations required by the least-squares method. The results
in this case are:
Intercept (fixed cost) .... $2,433
Slope (variable cost) ..... $1.68
r
2
................................. 0.99
Statistical software or a spreadsheet program can do the
computations required by the least-squares method. The results
in this case are:
Month x y xy x
2
y
2
Apr 4,000.00 9,500.00 38,000,000.00 16,000,000.000 90,250,000.00
May 1,000.00 4,000.00 4,000,000.00 1,000,000.000 16,000,000.00
Jun 3,000.00 8,000.00 24,000,000.00 9,000,000.000 64,000,000.00
Jul 5,000.00 10,000.00 50,000,000.00 25,000,000.000 100,000,000.00
Aug 10,000.00 19,500.00 195,000,000.00 100,000,000.000 380,250,000.00
Sep 7,000.00 14,000.00 98,000,000.00 49,000,000.000 196,000,000.00
30,000.00 65,000.00 409,000,000.00 200,000,000.000 846,500,000.00
a= 2,433.33
b= 1.68
r
2
= 0.99618898


Page | 24
The fixed cost is therefore $2,433 per month and the variable
cost is $1.68 per meal served, or:
Y = $2,433 + $1.68X, where X is meals served.
r
2
is a measure of the goodness of fit of the regression line. In
this case, it indicates that 99% of the variation in cafeteria costs
is due to the number of meals served. This suggests an excellent
fit.

Page | 25
LEAST-SQUARES REGRESSION (continued)
EXAMPLE: Kohlson Company has incurred the following shipping
costs over the past eight months:
Units Sold Shipping Cost
January .. 6,000 $66,000
February . 5,000 $65,000
March ..... 7,000 $70,000
April ....... 9,000 $80,000
May ........ 8,000 $76,000
June ....... 10,000 $85,000
July ........ 12,000 $100,000
August .... 11,000 $87,000
With the high-low method, we previously calculated the following
equation:
Y = $40,000 + $5X
Using linear regression method, we get:
Month x y xy x
2
y
2
Jan 6,000 66,000 396,000,000 36,000,000 4,356,000,000
Feb 5,000 65,000 325,000,000 25,000,000 4,225,000,000
Mar 7,000 70,000 490,000,000 49,000,000 4,900,000,000
Apr 9,000 80,000 720,000,000 81,000,000 6,400,000,000
May 8,000 76,000 608,000,000 64,000,000 5,776,000,000
Jun 10,000 85,000 850,000,000 100,000,000 7,225,000,000
Jul 12,000 100,000 1,200,000,000 144,000,000 10,000,000,000
Aug 11,000 87,000 957,000,000 121,000,000 7,569,000,000
68,000 629,000 5,546,000,000 620,000,000 50,451,000,000
Number of observations= 8
a= 38,250.00
b= 4.75
r
2
= 0.992566503

Y = $38,250 + $4.75X

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TRADITIONAL VERSUS CONTRIBUTION
INCOME STATEMENT

If sales doubled, what would be the net operating income?
Traditional Format = $2,000?
Contribution Format = $6,000!

Page | 27
COST FLOWS IN A MANUFACTURING
COMPANY

Page | 28
COST FLOWS EXAMPLE
EXAMPLE: Ryarder Company incurred the following costs last
month:
Purchases of raw materials .... $200,000
Direct labor ........................... $270,000
Manufacturing overhead ........ $420,000
Total Costs last month $890,000
But:
Some of the goods sold this month may have been produced
in a previous month.
Some of the costs listed above were incurred to make goods
that were not sold this month and may not be sold for a
number of months.
Therefore:
Cost of goods sold does not necessarily equal the sum of the
above costs.
We need to determine the values of the various inventories;
raw materials, work in process and finished goods.
Page | 29
COST FLOWS EXAMPLE (continued)
Additional data for Ryarder Company:
Raw materials inventory:
Beginning raw materials inventory ...... $10,000
Purchases of raw materials ................ $200,000
Ending raw materials inventory .......... $30,000
Raw materials used in production ....... ?

Work in process inventory:
Beginning work in process inventory... $40,000
Total manufacturing costs .................. ?
Ending work in process inventory ....... $60,000
Cost of goods manufactured (i.e., finished) ?

Finished goods inventory:
Beginning finished goods inventory .... $130,000
Cost of goods manufactured (i.e., finished) ?
Ending finished goods inventory ......... $80,000
Cost of goods sold ............................. ?
Page | 30
INVENTORY FLOWS

Basic Equation for Inventory Accounts:
Beginning Additions Ending Withdrawals
+ = +
balance to inventory balance from inventory

or
Withdrawals Beginning Additions Ending
= + -
from inventory balance to inventory balance

Page | 31
COST FLOWS EXAMPLE (continued)
Computation of raw materials used in production
Beginning raw materials inventory ....... $ 10,000
+ Purchases of raw materials .................. 200,000
Ending raw materials inventory ............ 30,000
= Raw materials used in production ........ $180,000
Computation of total manufacturing cost
Raw materials used in production ........ $180,000
+ Direct labor ........................................ 270,000
+ Manufacturing overhead ...................... 420,000
= Total manufacturing cost ..................... $870,000
Computation of cost of goods manufactured
Beginning work in process inventory .... $ 40,000
+ Total manufacturing cost ..................... 870,000
Ending work in process inventory ......... 60,000
= Cost of goods manufactured (i.e., finished)
.......................................................
$850,000
Computation of cost of goods sold
Beginning finished goods inventory ...... $130,000
+ Cost of goods manufactured (i.e., finished)
.......................................................
850,000
Ending finished goods inventory .......... 80,000
= Cost of goods sold .............................. $900,000
Page | 32
SCHEDULE OF COST OF GOODS
MANUFACTURED
Ryarder Company
Schedule of Cost of Goods Manufactured

Direct materials:
Beginning raw materials inventory .. $ 10,000
Add: Purchases of raw materials..... 200,000
Raw materials available for use ...... 210,000
Deduct: Ending raw materials
inventory ....................................
30,000
Raw materials used in production ... $180,000
Direct labor ..................................... 270,000
Manufacturing overhead ................... $420,000
Total manufacturing cost .................. 870,000
Add: Beginning work in process
inventory ......................................
40,000
910,000
Deduct: Ending work in process
inventory ......................................
60,000
Cost of goods manufactured ............. $850,000

Cost of Goods Sold
Beginning finished goods inventory ... $130,000
Add: Cost of goods manufactured ..... 850,000
Goods available for sale ................... 980,000
Deduct: Ending finished goods inventory 80,000
Cost of goods sold ........................... $900,000

Page | 33
COST CLASSIFICATIONS FOR ASSIGNING COSTS
TO COST OBJECTS
COST OBJECT
A cost object is anything for which cost data are desired.
Examples of cost objects:
Products
Customers
Departments
Jobs
DIRECT COSTS
A direct cost is a cost that can be easily and conveniently traced
to a particular cost object.
Examples of direct costs:
The direct costs of a Ford SUV would include the cost of
the steering wheel purchased by Ford from a supplier, the
costs of direct labor workers, the costs of the tires, and so
on.
The direct costs of a hospitals radiology department
would include X-ray film used in the department, the
salaries of radiologists, and the costs of radiology lab
equipment.
INDIRECT COSTS
An indirect cost is a cost that cannot be easily and conveniently
traced to a particular cost object.
Examples of indirect costs:
Manufacturing overhead, such as the factory managers
salary at a multi-product plant, is an indirect cost of any
one product.
General hospital administration costs are indirect costs of
the radiology lab.
Page | 34
COST CLASSIFICATIONS FOR DECISION-MAKING
DIFFERENTIAL/INCREMENTAL COST
Every decision involves choosing from among at least two
alternatives. Any cost that differs between alternatives is a
differential cost or incremental cost. Only the differential costs are
relevant in making a decision.
EXAMPLE: Bill is currently employed as a lifeguard, but he has
been offered a job in an auto service center in the same town.
When comparing the two jobs, the differential revenues and costs
are:
Auto Differential
Life- Service costs and
guard Center revenues
Monthly salary ............... $1,200 $1,500 $300
Monthly expenses:
Commuting ................. 30 90 60
Meals ..........................
................................
150 150 0
Apartment rent ............ 450 450 0
Uniform rental ............. 0 50 50
Sunscreen ................... 10 0 (10)
Total monthly expenses .. 640 740 100
Net monthly income ....... $ 560 $ 760 $200
Page | 35
OPPORTUNITY COST
An opportunity cost is the potential benefit given up when
selecting one course of action over another. It is its value when it
is used in its next-best alternative.
EXAMPLE: Linda has a job in the campus bookstore and is paid
$65 per day. One of her friends is getting married and Linda
would like to attend the wedding, but she would have to miss a
day of work. If she attends the wedding, the $65 in lost wages
will be an opportunity cost of attending the wedding.
EXAMPLE: The reception for the wedding mentioned above will be
held in the ballroom at the Lexington Club. The manager of the
Lexington Club had to decide between accepting the booking for
the wedding reception and accepting a booking for a corporate
seminar. The hall could have been rented to the corporation for
$600. The lost rental revenue of $600 is an opportunity cost of
accepting the reservation for the wedding.

Page | 36
SUNK COST
A sunk cost is a cost that has already
been incurred and that cannot be
changed by any decision made now
or in the future. Sunk costs are
irrelevant and should be ignored in
decisions.
Some managers mistakenly attempt to recover the costs of past
decisions in their pricing or marketing decisions for new products
and processes.
For example, an extensive research and development effort
produces a new product. The decision to market the product
depends only on the cost of new facilities to produce the product,
its sales potential and its costs of production. The amount already
spent on R&D is irrelevant to the marketing decision; it has
already been spent and the expenditure will be unaffected by
whether the product is marketed or not. It has become a sunk
cost.
EXAMPLE: Linda has already purchased a ticket to a rock concert
for $35. If she goes to the wedding, she will be unable to attend
the concert. The $35 is a sunk cost that she should ignore when
deciding whether or not to attend the wedding. [However, any
amount she can get by reselling the ticket is NOT a sunk cost.
And while she should ignore the $35 sunk cost, she should not
ignore the enjoyment she would get if she were to attend the
concert.]
Page | 37
ACCOUNTING FOR LABOR COSTS
Labor costs can be categorized as follows:
Direct labor
Indirect labor
(part of manufacturing
overhead) Other labor costs
(Discussed earlier) Janitors Idle time
Supervisors Overtime premium
Materials handlers Labor fringe
benefits
Engineers
Night security guards
Maintenance workers
IDLE TIME
Idle time represents the wages of direct labor workers who are
idle due to machine breakdowns, material shortages, power
failures, and the like. The cost of idle time is often added to
manufacturing overhead.
EXAMPLE: An assembly line worker is idle for 2 hours during the
week due to a power failure. If the worker is paid $15 per hour
and works a normal 40 hour week, labor cost would be allocated
as follows between direct labor and manufacturing overhead:
Direct labor cost ($15 per hour 38 hours) ...... $570
Manufacturing overhead cost ($15 per hour 2 hours)
....................................................................
30
Total cost for the week ..................................... $600
Page | 38
OVERTIME PREMIUM
Any overtime premium paid to factory workers (direct as well as
indirect labor) is usually considered to be part of manufacturing
overhead.
EXAMPLE: Assume again that an assembly line worker is paid $15
per hour. The worker is paid time and a half for overtime (time in
excess of 40 hours per week). During a given week this employee
works 46 hours and has no idle time. Labor cost would be
allocated as follows:
Direct labor cost ($15 per hour 46 hours) ........... $690
Manufacturing overhead cost ($7.50 per hour 6 hours) 45
Total cost for the week .......................................... $735
LABOR FRINGE BENEFITS
Labor fringe benefits are made up of employment related costs
paid by the employer. These costs are handled in two different
ways by companies:
Many companies treat all such costs as indirect labor and
add them to manufacturing overhead.
Other companies treat that portion of fringe benefits that
relates to direct labor as additional direct labor cost.

Page | 39
Example (Kaplan, 1982):
The Connors Company manufactures a basic chemical, Noxium,
which can be sold directly or processed further into a more
valuable chemical, Valmite. The Connors Company can sell all
the Noxium that it produces at a price of $100 per ton. The
Valmite market is more volatile, with prices ranging between
$125 and $200 per ton. The Connors Company accounting
system reports the following costs for Noxium and Valmite:
Noxium Valmite
Direct materials (VC) $50
Direct labor (VC) 10
Manufacturing Overhead 30
Cost per ton $90 $90
Processing costs:
Additional direct materials (VC) 20
Additional direct labor (VC) 10
Manufacturing Overhead 15
Cost per ton $135
Selling price (SP) $100 $125-200

Further investigation reveals that the manufacturing overhead
cost per ton is obtained by dividing the total estimated
manufacturing overhead cost for the year by the total hours of
available capacity. The manufacturing overhead cost is
allocated to products in proportion to processing time.
Manufacturing overhead costs, however, do not vary with the
amount of production. Two hours are required to produce a ton
of Noxium, and one additional hour is needed to process the
finished Noxium into Valmite ($15 per DLH). Both products
share the same production facilities, which can be used
interchangeably to produce Noxium or Valmite.
Page | 40
Production
and sale of
Valmite should
be
discontinued
whenever its
selling price
drops below
$135 per ton
The cost of
producing
Valmite is
actually $130
(not $100),
but it would
still be a
profitable
product at a
selling price of
$135
The sales manager of the Connors Company
argues that production and sale of Valmite
should be discontinued whenever its selling
price drops below $135 per ton, since
otherwise the firm would be losing money on
each ton sold. This reasoning is clearly
fallacious, since, among other failings, it does
not distinguish between the fixed and variable costs of
production. The manufacturing overhead costs charged to both
Noxium and Valmite are fixed costs that will not change if
production of Valmite is discontinued. On a variable cost basis,
Noxium costs $60 per ton to produce, so that its contribution
margin per ton sold is $40 (SP less VC). The $60 is also the
variable cost of using Noxium as an input material for Valmite.
Therefore the total variable cost of Valmite is $90 (the $60
Noxium cost plus the $30 direct materials and direct labor cost
for additional processing). Even with a selling price as low as
$135 per ton, Valmite shows a contribution margin per ton of
$45. Thus, the initial analysis shows that by distinguishing
between fixed and variable costs, we are not misled into
thinking that the Connors Company is losing money on sales of
Valmite.
But this is only the start of the complete analysis. For if Noxium
can be sold outside the firm at a price of $100 per ton, every
ton of Noxium that is used to produce Valmite costs the
company not only the $60 variable cost but the lost $40
contribution margin that could otherwise be
earned if it were sold. Therefore the cost of
Noxium to produce Valmite is actually $100 (its
opportunity cost), not $60. With this
refinement, the cost of producing Valmite is
actually $130 (not $100), but it would still be a
profitable product at a selling price of $135. In
fact, at this stage, Valmite at a price of $135 per
ton would appear to be more profitable than
Noxium, since it can show a profit even after paying for the
Page | 41
Only when the
selling price
reaches $150,
are the two
products
equally
profitable.
foregone contribution margin of Noxium. At the $125 price at
the low end of the price range, Valmite does not cover its
variable plus opportunity costs.
We now reach the final stage of the analysis, where we use the
information that Noxium and Valmite share the same
production facilities. Every hour used to produce a ton of
Valmite consumes an hour that otherwise could be used to
produce a half-ton of Noxium. Therefore the opportunity cost of
producing a ton of Valmite is not only the $40 contribution
margin from not selling a ton of Noxium but also the loss in
production time that could otherwise be used to produce
additional amounts of Noxium. If the price of Valmite is only
$135, then each ton manufactured produces a contribution
margin (after paying the opportunity cost of
Noxium) of $5. But the one hour of time required
to produce the ton of Valmite could have been
used to produce a half-ton of Noxium, which
would generate a contribution margin of $20 (0.50
x 40). Thus, after the opportunity cost of the
scarce production facilities is recognized, a $135
selling price for Valmite makes it a less profitable product than
Noxium. Only when the selling price reaches $150, where
Valmite is generating a net contribution margin of $20
per hour of production time (the same as Noxium), are
the two products equally profitable.
In summary, the opportunity cost of producing a ton of
Valmite is the $100 foregone by not selling the ton of Noxium
required for Valmite plus the $20 in contribution margin lost by
not producing a half-ton of Noxium during the hour that the
production facilities are used to produce the ton of Valmite.
Adding the direct materials and labor cost of $30 for
Valmite to the $120 opportunity cost yields the $150
incremental cost (or foregone revenue) for producing Valmite
rather than Noxium. Note that traditional accounting would not
show the $120 opportunity cost of using Noxium to produce
Valmite.
Page | 42
Summary:
Failure to consider alternative uses for the firms
resources could lead one to underestimate the
opportunity cost of these resources and, consequently,
to a less than optimal utilization.
Page | 43
APPENDIX 2A: LEAST-SQUARES REGRESSION
COMPUTATIONS
Example: Montrose Hospital operates a cafeteria for employees.
Management would like to know how cafeteria costs are affected
by the number of meals served.
Meals Served X Total Cost Y
April ......... 4,000 $9,500
May ......... 1,000 $4,000
June ......... 3,000 $8,000
July .......... 5,000 $10,000
August ..... 10,000 $19,500
September 7,000 $14,000
Statistical software or a spreadsheet program can do the
computations required by the least-squares method. The results
in this case are:
Intercept (fixed cost) .... $2,433
Slope (variable cost) ..... $1.68
R
2
................................ 0.99
The fixed cost is therefore $2,433 per month and the variable
cost is $1.68 per meal served, or:
Y = $2,433 + $1.68X,
where X is meals served.

$-
$5,000
$10,000
$15,000
$20,000
$25,000
- 2,000 4,000 6,000 8,000 10,000 12,000
Total Cost
Total Cost
Page | 44
0
5000
10000
15000
20000
25000
0 2000 4000 6000 8000 10000 12000
y

X
R
2
is a measure of the goodness of fit of the regression line. In
this case, it indicates that 99% of the variation in cafeteria costs
is due to the number of meals served. This suggests an excellent
fit.









Page | 45
QUALITY COSTS (Appendix 2B)
The costs of correcting defective units before they reach
customers are called internal failure costs. Examples:
Scrapped units.
Rework of defective units.
Costs that are incurred by releasing defective units to
customers are called external failure costs. Examples:
Costs of fixing products under warranty.
Loss of sales due to a tarnished reputation.
The costs of internal and external failures can be avoided
by:
Preventing defects.
Finding defective units before they are released.
The costs associated with these activities are called prevention
costs and appraisal costs, respectively.
Generally, prevention is the best policy. It is usually far
easier and less expensive to prevent defects than to fix
them.

By KEN THOMAS, Associated Press
Writer Tue Sep 29, 7:42 pm ET
WASHINGTON Toyota Motor Corp.
said Tuesday it will recall 3.8 million
vehicles in the United States, the
company's largest-ever U.S. recall, to
address problems with a removable floor mat that could cause
accelerators to get stuck and lead to a crash. The recall will
involve popular models such as the Toyota Camry, the top-
selling passenger car in America, and the Toyota Prius, the best-
selling gas-electric hybrid.

Page | 46
Ford Recalls Millions of Firestone Tires
Number two automaker cites safety as reason behind one of the largest voluntary
recalls in automotive history By Peter D. duPre
Ford Motor Company launched one of the largest automotive recalls in history May 22
with the announcement it will replace all Firestone Wilderness AT tires on its vehicles.
Jacques Nasser, Ford president and CEO, said the move was designed to ensure the
safety of Ford customers and bolster the company's position as a leader in customer
satisfaction.
"We feel it is our
responsibility to act
immediately," said Nasser.
"Our customers look to us
to ensure the safety of our
vehicle. That is why Ford
will replace the AT tires on
all our vehicles. The cost
to Ford will be more than
$2 billion after taxes, but
the greater concern is the
inconvenience to, and the
safety of, our customers."
Ford issued a recall last
year on the Firestone
Wilderness tires, replacing
almost 6 million tires on
Ford vehicles, mainly
Explorer. This newest
recall includes all the non-
recall replacement tires
from last summer and all
Wilderness tires currently installed on current and new model Ford vehicles.
Ford has voluntarily recalled some 13 million Firestone Wilderness AT tires due
to safety concerns. They say tread failure on these tires is higher than normal.
"Some of the tires we are replacing do not have a substantial risk of failure," Nasser
continued, "but rather than segregate the tires, we are offering to replace all the
Wilderness AT tires to eliminate any doubt by our customers about the safety of their
tires."
According to John Rintamaki, Ford group vice president and chief of staff, the decision
to voluntarily recall the tires was made after an intensive study of the tires.
"The process that brought us to this decision was intensive," said Rintamaki. "It is
important to understand that the decision (to recall the tires) was made by studying the
field data, information supplied by NHTSA, and by completing our own technical
analysis."
"We have been analyzing the field data over the past several days and it shows that the
failure rate is increasing. The data showed that even the non-recalled Wilderness AT
tires will continue to have a failure rate that is higher than acceptable," Rintamaki
continued.
Page | 47
What is the acceptable failure rate? According to Rintamaki, the only standard of
comparison for tire failures is the 2.9 million Goodyear installed on Ford Explorers since
last year (as a replacement for the recalled Firestone tires). He said that the company
installed an equal number of Goodyear replacement tires and Firestone replacement
tires and pointed out that of the 2.9 million Goodyear tires, there were just two tread
separations. Out of the 2.9 million Firestone replacement tires, the company noted
1,183 tread separations.
Rintamaki said that Ford's replacement plan will concentrate first on the oldest Firestone
tires installed on its vehicles as the company feels that they have highest chance of
failure.
"Tires less than three years old have a lower failure rate," said Rintamaki, "so we will
replace older tires first, then the newer ones. But all Wilderness tires installed on Ford
vehicles will be replaced."

Rintamaki also said that the tires will be replaced at Ford dealerships and that the
company will reimburse Ford customers for any replacement Firestone tires purchased
from other sources up to $130 for each tire. He also said that the company was idling
three truck plants in the U.S. while the changeover to replacement tires was being
made.

Page | 48
Toyota to hold world's biggest car recall in 16
years

David McNew / Getty Images, file
Toyota is to recall over 7 million vehicles over faulty window switches.
By Paul A. Eisenstein, NBC News contributor
UPDATED 9:43 a.m. EDT: Toyota Motor Co., still in recovery mode after a series
of problems that plagued its global operations over the last three years, announced
Wednesday it is recalling 2.5 million vehicles sold in the United States due to a
potential risk of fire.
The recall involves 7.43 million vehicles worldwide sold under the Toyota and
Scion brands. This is the largest safety-related service action the maker has
announced since it began a series of recalls related to the risk of unintended
acceleration in late 2009. That and other safety issues led Toyota to recall 14
million vehicles in 2009 and 2010.
It's the biggest single recall since Ford Motor Co pulled back 7.9 million vehicles
in 1996.
Many of the vehicles involved in the new Toyota recall also were called back one
or more times due to unintended acceleration issues.
The latest recall is the result of a problem with a potentially defective power
window switch on the drivers side of the affected vehicles which, the maker says,
may experience a 'notchy' or sticky feel during operation. If commercially
available lubricants are applied to the switch in an attempt to address the 'notchy'
or sticky feel, melting of the switch assembly or smoke could occur and lead to a
fire under some circumstances.
Page | 49
Toyota already announced recalls for several models involving similar window
switches and in February, the National Highway Traffic Safety Administration
announced it would open an investigation into the issue. But at the time it focused
on just 830,000 Camry and RAV-4 models sold during the 2007 model year.
The massive size of the new recall underscores the risks manufacturers like Toyota
face when they share basic components on a wide range of vehicles hoping to
improve manufacturing economies of scale.
In the U.S., the vehicles involved in the latest recall include:
2007 2009 Camry sedans, approx. 938,100 vehicles;
2007 2009 Camry Hybrids, approx. 116,800 vehicles;
2007 2009 RAV4 crossovers, approx. 336,400 vehicles;
2007 2009 Tundra pickups, approx. 337,100 vehicles;
2007 2008 Yaris subcompacts, approx. 110,300 vehicles;
2008 Highlander SUVs, approx. 135,400 vehicles;
2008 Highlander Hybrids, approx. 23,200 vehicles;
2008 2009 Scion xD models, approx. 34,400 vehicles;
2008 2009 Scion xA models, approx. 77,500 vehicles;
2008- 2009 Sequoia SUVs, approx. 38,500 vehicles;
2009 Corolla compacts, approx. 270,900 vehicles; and
2009 Matrix crossovers; approx. 53,800 vehicles.
To check whether your call is involved, you can go to Toyota's recall web page.
The maker estimates the inspection and repair process will take little more than an
hour and involves the disassembly of the master switch and, if necessary, the
application of a special fluorine grease.
NHTSA has received more than 200 reports of problems involving the defective
switch including fires, though there are no known crashes or injuries. At least 39
similar problems were reported in Japan, where 460,000 Toyota vehicles were
recalled.
Another 1.39 million vehicles are subject to the new recall in Europe, while the
massive safety campaign also covers Australia, China and other parts of Asia and
the Mideast.
In the U.S. market, the Toyota announcement is the largest recall of the year and
could revive concerns about quality control at a manufacturer normally at the top
of the charts. Such concerns plagued the maker during much of 2009 and 2010 and
officials including President Akio Toyoda were hauled before Congress to explain
the massive recalls related to the unintended acceleration issue.
Toyoda has repeatedly promised, since that scandal began, to ramp up the makers
quality control process, and it is important to note that all the vehicles impacted by
the latest recall were produced during or before the 2009 model year. Nonetheless,
the new service action will again put an unwanted spotlight on the maker.
Page | 50
Toyota had more vehicles involved in recalls than any other maker in the U.S. in
2010 and came just short of achieving that dubious distinction again in 2011. A
large recall late in the year, however, put Honda at the top of the list. Indeed,
Honda recalled 1.7 million vehicles as part of three separate service actions last
week while NHTSA launched an investigation into potential problems involving
another 600,000 vehicles.
While there have been scores of recalls announced this year involving every brand
from Chevrolet to Ferrari, with todays announcement, it appears that both Toyota
and Honda are again in an unwanted race to lead the recall list again for 2012.

Page | 51
Faulty brakes cause recall of 76,200
BMWs
Matt Schmitz and Chris Woodyard, Cars.com and USA TODAY 7:10 p.m. EDT October 1, 2013
About 76,200 BMWs equipped with 2-liter four-cylinder
gasoline engines are being recalled out of fear of a glitch that
could cause the brakes to malfunction.
The recall includes the 1 Series, 3 Series and 5 Series sedans, as
well as the X1 and X3 crossovers and Z4 sports car from the
2012 to 2014 model years.
The recalled vehicles could have an interruption in the oil supply
that could result in loss of the power brakes. Without power
brakes, the car could still be
stopped. It would just be
more difficult, requiring a lot
more pedal pressure.
BMW is telling drivers that
may have had the problem to
pull their car off the road and
call for a tow truck.

Page | 52
Costco recalls 40,000 pounds of rotisserie
chicken for salmonella risk
JoNel Aleccia NBC News
October 12, 2013
A Costco wholesale store in South San Francisco, Calif., is recalling nearly 40,000
pounds of rotisserie chicken products because the food may be linked to an
outbreak of salmonella poisoning that now has sickened more than 300 people in
20 states, federal health officials said early Saturday.
The Costco store at 1600 El Camino Real is recalling 8,730 Kirkland Signature
Foster Farms rotisserie chickens and 313 units of Kirkland Farm rotisserie chicken
soup, rotisserie chicken leg quarters and rotisserie chicken salad, according to a
notice issued by the U.S. Department of Agriculture's Food Safety and Inspection
Service. The products were sold directly to consumers between Sept. 11 and Sept.
23.
The rotisserie chickens may have been contaminated with a type of salmonella
Heidelberg rarely found in the United States, FSIS officials said. The strain is
linked to an ongoing food poisoning outbreak associated with three Foster Farms
poultry plants in Fresno and Livingston, Calif. The USDA issued a public health
alert for products from the plant on Monday, but on Thursday agreed that the
facilities could remain open if the company made promised food safety fixes.
At least 317 people in 20 states have been sickened by the outbreak since March,
according to an updated notice from the Centers for Disease Control and
Prevention. Most of the cases have been in California, where 232 people have been
reported ill. It is the second outbreak of salmonella Heidelberg tied to Foster Farms
in less than a year. A previous outbreak sickened 134 people in 13 states.
Some of the seven strains of salmonella detected in the outbreak are drug-resistant,
which has created hard-to-treat infections in some patients. About 42 percent of
victims in the outbreak have been hospitalized, twice the typical rate for salmonella
infections.
It was not immediately clear if other Costco stores would recall Foster Farms
products, too. Earlier on Friday, Craig Wilson, Costco's vice president for food
safety, told NBC News that Costco was not recalling products tied to the Foster
Farms outbreak.
The Kroger Co., a large chain of grocery stores, removed the affected Foster Farms
raw chicken products from store shelves earlier this week and notified customers
that they may have bought contaminated meat. The company removed products
Page | 53
from its Fred Meyer, Fry's, King Soopers/City Market, Ralphs, Food 4 Less,
Smith's in southern Nevada and New Mexico and QFC stores and warehouses,
officials said in a statement. Not all Foster Farms products were affected by the
public health alert, so some chicken remains on store shelves, officials said.
Foster Farms officials have declined to issue voluntary recalls for their chicken
products, saying that USDA continued to inspect the products daily and that the
raw chicken is safe if handled properly and cooked to 165 degrees Fahrenheit,
which will kill the bacteria.
Salmonella Heidelberg can cause illness that may be life-threatening in people with
weak immune systems such as children, the elderly and those with cancer or HIV
infection. Most common symptoms include diarrhea, abdominal cramps and fever
within eight hours to three days after eating the contaminated product. Chills,
headache, nausea and vomiting can last up to a week.
Foster Farms is a West Coast poultry producer with plants in Oregon, Washington,
California and Alabama.
JoNel Aleccia is a senior health writer with NBC News. Follow her on Twitter at
@JoNel_Aleccia or send her an email.
Page | 54
EXAMPLES OF QUALITY COSTS

Page | 55
TRADING-OFF QUALITY COSTS

Page | 56
QUALITY COST REPORTS
Quality cost reports summarize prevention costs, appraisal
costs, internal failure costs, and external failure costs that
would otherwise be hidden in general overhead.
Managers are often surprised by how much defects cost.
The report helps identify where the biggest quality
problems lie.
The report helps managers assess how resources should
be distributed. If internal and external failure costs are
high relative to prevention and appraisal costs, more
should probably be spent on prevention and appraisal.
Because quality cost reports are largely an attention-
directing device, the costs do not have to be precise.
Unfortunately, the cost of lost sales due to external failures
is usually excluded from the reports due to measurement
difficulties.
Page | 57
SAMPLE QUALITY COST REPORT


Page | 58
Quality costs Costs incurred to prevent defects or that result from
defects in products. Many companies are working hard to reduce their
quality costs. Those companies that are succeeding have a high quality of
conformance in the sense that the overwhelming majority of the products
that they produce conform to design specifications and are free from
defects.
There are four broad categories of quality costs:
Prevention costs Are incurred to support activities whose purpose is to
reduce the number of defects.
Suppose an ice cream company has been having problems with
unpleasant gritty ice crystals in its ice cream. How would we prevent the
ice crystal defect? One approach would be to investigate the
manufacturing process. Perhaps the gritty ice crystals are caused by
temperature variations in the freezer. Controlled experiments could be
run varying the temperature and inspecting for ice crystals. If this is the
cause, the variation in temperature could be decreased or the
ingredients changed so they would be less sensitive to temperature
changes.
Appraisal costs Are incurred to identify defective products before the
products are shipped to customers.
Continuing the ice cream example, how would you inspect out the ice
crystal problem? This may be more difficult and expensive than it first
appears. For example, the problem could occur only in half-gallon
containers or at random in a small (but important) number of
containers. Or, the ice crystals could only be detected by tasting ice
cream near the bottom of the container. Inspecting out the problem
would make a lot of ice cream unsaleable.
Internal failure costs Are incurred as a result of identifying defects
before they are shipped to customers.
External failure costs Are incurred as a result of defective products
being delivered to customers.
Continuing with the ice cream example, how would you identify
examples of internal and external failure costs? Internal failure costs
could result from throwing away defective ice cream. External failure
costs could result from customers returning defective ice cream or
failing to purchase the ice cream companys product at a later date.
Page | 59
Examples of each type of quality cost include:
Prevention Quality training, quality circles (group of employees who
perform similar duties and meet at periodic intervals, often with
management, to discuss work-related problems), statistical process
control activities, etc.
Appraisal Testing and inspection of incoming materials, final
product testing, depreciation of testing equipment, etc.
Internal failure Scrap, spoilage, rework, etc.
External failure Cost of field servicing and handling customer
complaints, warranty repairs, lost sales arising from reputation of
poor quality, etc.
Distribution of quality costs Graphs are often used to depict the
relationship between the four types of quality costs. The graph illustrates
four key concepts.
When the quality of conformance is low, total quality cost is high and
most of this cost consists of internal and external failure costs.
Total quality costs drop rapidly as the quality of conformance increases.
Companies reduce their total quality costs by focusing their efforts on
prevention and appraisal because the cost savings from reduced
defects usually overwhelm the costs of additional prevention and
appraisal.
Continuing with the ice cream example, the prevention activities
mentioned earlier may reveal that, if fluctuating temperatures is the
problem, a simple thermostat may solve the problem. The cost to identify
the problem and install a thermostat is much less that the costs of
scrapped ice cream, customer returns and complaints, and lost future
business.
Total quality costs are minimized when the quality of conformance is
less than 100%. This is a debatable point in the sense that some experts
believe that total quality costs are not minimized until the quality of
conformance is 100%.

Page | 60
Quality cost report this report details the prevention, appraisal,
internal failure, and external failure costs that arise from a companys
current quality control efforts.
When interpreting a cost of quality report managers should look for two
trends. First, increases in prevention and appraisal costs should be more
than offset by decreases in internal and external failure costs. Second,
the total quality costs as a percent of sales should decrease.
Quality cost reports can also be prepared in graphic form. Managers
should still look for the same two trends whether the data is presented in
a graphic or table format.
Uses of quality cost information:
It helps managers see the financial significance of defects.
It helps managers identify the relative importance of the quality
problems faced by the company.
It helps managers see whether their quality costs are poorly distributed.
In general, costs should be distributed more toward prevention and
to a lesser extent appraisal than toward failures.
Limitations of quality cost information
Simply measuring and reporting quality cost problems does not solve
quality problems.
Results usually lag behind quality improvement programs. Initially,
prevention and appraisal cost increases may not be offset by
decreases in failure costs.
The most important quality cost, lost sales arising from customer ill-
will, is often omitted from quality cost reports because it is difficult
to estimate.
Page | 61
International aspects of quality
The International Organization for Standardization, based in Geneva
Switzerland, has established quality control guidelines known as the
ISO 9000 standards. For a company to become ISO 9000 certified by a
certifying agency it must demonstrate that:
i. A quality control system is in use, and the system clearly
defines an expected level of quality.
ii. The system is fully operational and is backed up with
detailed documentation of quality control procedures.
iii. The intended level of quality is being achieved on a sustained
basis.
Although the ISO 9000 standards were developed in Europe they have
become widely accepted elsewhere throughout the world including the
United States.

ISO is the world largest standards developing organization. Between
1947 and the present day, ISO has published more than 17,000
International Standards, ranging from standards for activities such as
agriculture and construction, through mechanical engineering, to
medical devices, to the newest information technology developments.
At the end of 2004, the worldwide total of certificates:
ISO 9000 670,000 in 154 countries
ISO 14000 90,000 in 127 countries