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Acct 3333 Ch19 In Class problems Fall 2010

# Acct 3333 Ch19 In Class problems Fall 2010 - 19-17(20...

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Unformatted text preview: 19-17(20 min.)Costs of quality analysis. 1.Appraisal cost = Inspection cost= \$5 × 100,000 car seats= \$500,0002.Internal failure cost = Rework cost = 5% × 100,000 × \$1= 5,000 × \$1 = \$5,0003.Out of pocket external failure cost = Shipping cost + Repair cost = 2% × 100,000 × (\$10 + \$1)= 2,000 × \$11 = \$22,0004.Opportunity cost of external failure= Lost future sales= (2% × 100,000) × 20% × \$500= 400 car seats × \$500 = \$200,0005.Total cost of quality control = \$500,000 + 5,000 + 22,000 + 200,000= \$727,0006.Quality control costs under the alternative inspection technique:Appraisal cost = \$1.50 × 100,000 = \$150,000Internal failure cost = 2.5% × 100,000 × \$1 = \$2,500Out-of-pocket external failure cost = 4.5% × 100,000 × (\$10 + 1)= 4,500 × \$11 = \$49,500Opportunity cost of external failure = 4,500 car seats × 20% × \$500= 900 car seats × \$500 = \$450,000Total cost of quality control = \$150,000 + 2,500 + 49,500 + 450,000= \$652,0007.In addition to the lower costs under the alternative inspection plan, Safe Rider should consider a number of other factors:a.There could easily be serious reputation effects if the percentage of external failures increases by 225% (from 2% to 4.5%). This rise in external failures may lead to costs greater than \$500 per failure due to lost sales.b.Higher external failure rates may increase the probability of lawsuits. c.Government intervention is a concern, with the chances of government regulation increasing with the number of external failures. 19-18(15 min.)Cost of quality analysis, ethical considerations (continuation of 19-17).1.Cost of improving quality of plastic = \$25 × 100,000 = \$2,500,0002.Total cost of lawsuits = 2 × \$750,000 = \$1,500,0003.While economically this may seem like a good decision, qualitative factors should be more important than quantitative factors when it comes to protecting customers from harm and injury. If a product can cause a customer serious harm and injury, an ethical and moral company should take steps to prevent that harm and injury. The company’s code of ethics should guide this decision. 4.In addition to ethical considerations, the company should consider the societal cost of this decision, effects to reputation if word of these problems leaks out at a later date, and governmental intervention and regulation. The negative societal response could be quite strong, given infants are involved. 19-19(25 min.)Nonfinancial measures of quality and time.1.20092010Percentage of defective units shipped100= 5%2,000400= 4%10,000Customer complaints as a percentage of units shipped150= 7.5%2,000250= 2.5%10,000Percentage of units reworked during production120= 6%2,000700= 7%10,000Manufacturing lead time as a percentage of total time from order to delivery15= 50%3016= 57%282. Quality has by and large improved. The percentage of defects has decreased by 1% and the number of customer Quality has by and large improved....
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Acct 3333 Ch19 In Class problems Fall 2010 - 19-17(20...

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