Question

Advanced Technologies (AT) produces two compression machines that are popular with manufacturers of plastics: no. 165 and no. 172. Machine no. 165 has an average selling price of $60,000, whereas no. 172 typically sells for approximately $55,000. The company is very concerned about quality and has provided the following information: No. 165 No. 172 Number of machines produced and sold 80 TO Warranty costs: Average repair cost per unit $1,200 $400 Percentage of units needing repair 70% 10% Reliability engineering at $150 per hour 1,600 hours 2,000 hours Rework at AT's manufacturing plant: Average rework cost per unit $1,900 $1,600 Percentage of units needing rework 35% 25% Manufacturing inspection at $50 per hour 300 hours 500 hours Transportation costs to customer sites to fix problems $29,500 $15,000 Quality training for employees $35,000 $50,000 Requirements: 2. Using the classifications in requirement (1), compute AT's quality costs for machine no. 165 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. SHOW FORMULAS Dollars % of Sales Quality Training for Employees $35,000 Reliability Engineering 240000 Total Prevention Costs $275,000 Manufacturing Inspection $15,000 Total Appraisal Costs $15,000 Rework $53,200 Total Internal Failure Costs $53,200 Warranty Costs $67,200 Transportation to Customers $29,500 Total External Failure Costs $96,700 Total Quality Costs $439,900 3. Repeat requirement (2) for machine no. 172. SHOW FORMULAS Cost % of costs Quality Training $50,000 Reliability Engineering 300000 Total Prevention Costs $350,000 Manufacturing Inspection 25000 Total appraisal cost 25000 Rework $40,000 Total Internal Failure Costs $40,000 Warranty Cost $4,000 Transportation Costs $15,000 Total External Failure Costs $19,000 Total Quality Costs $434,000

Answer 1

Solution of 2nd and 3rd 55 56 57 No. 165 No.172 In Dollars In Dollars % of Sales % of Sales 58 Sales Revenue 59 4800000 5500000 60 0.91% Quality Training for Employees 0.73% 50000 61 35000 Reliability Engineering 5.00% 300000 5.45% 62 240000 Total Prevention Cost 5.73% 350000 63 275000 6.36% 0.31% Manufacturing Inspection Total Appraisal Costs 0.45% 64 15000 25000 0.31% 0.45% 65 15000 25000 1.11% 0.73% Rework 40000 66 53200 Total Internal Failure Costs 53200 1.11% 0.73% 67 40000 67200 1.40% 0.07% 68 Warranty Costs 4000 29500 0.61% 15000 0.27% 69 Transportation to Customers Total External Failure Costs 2.01% 0.35% 70 96700 19000 Total Quality Costs 9.16% 434000 7.89% 71 439900 72

86 No. 165 No.172 In Dollars In Dollars 87 3) % of Costs % of Costs Total Costs 88 439900 434000 89 Quality Training for Employees 7.96% 11.52% 90 35000 50000 54.56% Reliability Engineering 69.12% 91 240000 300000 Total Prevention Cost 62.51% 80.65% 92 275000 350000 Manufacturing Inspection 3.41% 5.76% 93 15000 25000 Total Appraisal Costs 3.41% 5.76% 94 15000 25000 Rework 12.09% 9.22% 95 53200 40000 12.09% Total Internal Failure Costs 9.22% 96 53200 40000 Warranty Costs Transportation to Customers 15.28% 4000 0.92% 97 67200 6.71% 3.46% 98 29500 15000 Total External Failure Costs 21.98% 4.38% 99 96700 19000 100 Total Quality Costs 100.00% 100.00% 439900 434000 101