19-30E
Question
Darrel & Co. makes electronic components. Chris Darrel, the president, recently instructed Vice President Jim Bruegger to develop a total quality control program. “If we don’t at least match the quality improvements our competitors are making,” he told Bruegger, “we’ll soon be out of business.” Bruegger began by listing various “costs of quality” that Darrel incurs. The first six items that came to mind were:
a. Costs incurred by Darrel customer representatives traveling to customer sites to repair defective products, \(13,000.
b. Lost profits from lost sales due to reputation for less-than-perfect products, \)35,000.
c. Costs of inspecting components in one of Darrel’s production processes, \(40,000.
d. Salaries of engineers who are redesigning components to withstand electrical overloads, \)65,000.
e. Costs of reworking defective components after discovery by company inspectors, \(50,000.
f. Costs of electronic components returned by customers, \)70,000.
Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost. Then determine the total cost of quality by category.
Step-by-Step Solution
VerifiedTotal Prevention Cost: $65,000
Total Appraisal Cost: $40,000
Total Internal Failure Cost: $50,000
Total External Failure Cost: $118,000
From the given list, followings are the prevention cost and their total –
S.No. | Cost | Amount |
|
|
|
d. | Salaries of engineers who are redesigning components to withstand electrical overloads | $65,000 |
| Total | $65,000 |
Following are the appraisal cost and their total from the given list –
S.No. | Cost | Amount |
|
|
|
c. | Costs of inspecting components in one of Darrel’s production processes. | $40,000 |
| Total | $40,000 |
S.No. | Cost | Amount |
|
|
|
e. | Costs of reworking defective components after discovery by company inspectors. | $50,000 |
| Total | $50,000 |
S.No. | Cost | Amount |
|
|
|
a. | Costs incurred by Darrel customer representatives traveling to customer sites to repair defective products. | $13,000 |
b. | Lost profits from lost sales due to the reputation for less-than-perfect products. | $35,000 |
f. | Costs of electronic components returned by customers. | $70,000 |
| Total | $118,000 |