# The company would have to compete on price rather

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The company would have to compete on price rather than quality and calculated the impact of having to lower product prices.Opportunity costs are not recorded in accounting systems because they represent the results of what might have happened if the company had not improved quality. Nevertheless, opportunity costs of poor quality can be significant. It is important for Osborn to take these costs into account when making decisions about quality.
SPRING 2016
19-171.Appraisal cost = Inspection cost= \$5 × 200,000 car seats= \$1,000,0002.Internal failure cost = Rework cost = 5% × 200,000 × \$1= 10,000 × \$1 = \$10,0003.Out of pocket external failure cost = Shipping cost + Repair cost = 1% × 200,000 × (\$8 + \$1)= 2,000 × \$9 = \$18,0004.Opportunity cost of external failure = Lost future profits= (1% × 200,000) × \$100= 2,000 car seats × \$100 = \$200,0005.Total cost of quality control = \$1,000,000 + \$10,000 + \$18,000 + \$200,000= \$1,228,000
SPRING 2016
19-176.Quality control costs under the alternative inspection technique:•.Appraisal cost = \$3 × 200,000 = \$600,000•.Internal failure cost = 3.5% × 200,000 × \$1 = \$7,000•.Out-of-pocket external failure cost = 2.5% × 200,000 × (\$8 + \$1)= 5,000 × \$9 = \$45,000•.Opportunity cost of external failure = (2.5% × 200,000) × \$100= 5,000 car seats × \$100 = \$500,000•.Total cost of quality control = \$600,000 + \$7,000 + \$45,000 + \$500,000 = \$1,152,000
7.In addition to the lower costs under the alternative inspection plan, Safe Travel should consider a number of other factors:
SPRING 2016
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SPRING 2016
SPRING 2016