Question

Learning Objective 52 Classifying quality costs and using these costs to make decisions Loiselle manufactures high-quality speakers. Suppose Loiselle is considering spending he following amounts on a new quality program: 2. Total cost to underta $2,305,000 $ 625,000 Additional 20 minutes testing for each speaker Negotiating and training suppliers to obtain higher-quality materials and on-time delivery Redesigning the speakers to make them easier to manufacture 430,000 1,250,000 Loiselle expects this quality program to save costs as follows: Reduce warranty repair costs Avoid inspection of raw materials Avoid rework because of fewer defective units $ 275,000 580,000 825,000

Answer 1

B C Amounts ($) Amount ($) 1250000 1250000 6250001 430000 1055000 2305000 1 1) 2 Particulars 3 Prevention 4. Redesigning the speakers to make them easier to manufacture 5 Appraisal cost 6 Additional 20 minutes testing for each speaker 7 Negotiating and traing suppliers to obtain higher quality materials 8 Total cost 9 10 2) 11 Particulars 12 Appraisal cost 13 Avoid inspection of raw materials 14 Internal failure 15 Avoid cost of network 16 Lost production time due to rework 17 External failure cost 18 Lost profits due to disappointed customer 19 Reduce warranty repair cost 20 Negotiating and training suppliers to obtain higher quality materials 21 Total savings Amount ($) Amount ($) 580000 580000 825000 278000 1 103000 920000 275000 430000 1625000 2728000

B C 1 1) 2 Particulars Amounts ($) Amount ($) 3 Prevention 4. Redesigning the speakers to make them easier to manufacture 1250000 =B4 5 Appraisal cost 6 Additional 20 minutes testing for each speaker 625000 7 Negotiating and traing suppliers to obtain higher quality materials 430000 =B6+B7 8 Total cost =C4+C7 9 10 2) 11 Particulars Amount ($) Amount ($) 12 Appraisal cost 13 Avoid inspection of raw materials 580000 =B13 14 Internal failure 15 Avoid cost of network 825000 16 Lost production time due to rework 278000 =B15+B16 17 External failure cost 18 Lost profits due to disappointed customer 920000 19 Reduce warranty repair cost 275000 20 Negotiating and training suppliers to obtain higher quality materials 430000 =B18+B19+B20 21 Total savings =C16+C20