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 $29,800, whereas no. 172 typically sells for approximately $27,300. The company is very concerned about quality and has provided the following information: No. 165 No. 172 Number of machines produced and sold 140 190 Warranty costs: Average repair cost per unit $ 890 $ 330 Percentage of units needing repair 70 % 10 % Reliability engineering at $130 per hour 1,590 hours 1,990 hours Rework at AT's manufacturing plant: Average rework cost per unit $ 1,880 $ 1,590 Percentage of units needing rework 40 % 25 % Manufacturing inspection at $60 per hour 290 hours 490 hours Transportation costs to customer sites to fix problems $ 29,300 $ 14,600 Quality training for employees $ 34,600 $ 49,600

Required: 2-a. Using the classifications in requirement (1), compute AT's quality costs for machine no. 165 in dollars and as a percentage of sales revenues. (Round "Percentage of Sales" to 2 decimal places.)

	No. 165 Dollars Percentage of Sales Prevention cost: Total $0 % Appraisal cost: % Internal failure cost: % External failure cost: Total $0 % Total quality costs $0 0.00 %

2-b. Using the classifications in requirement (1), compute AT's calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs. (Round "Percentage of Total Quality Costs" to 2 decimal places. Total may not be equal to 100% due to rounding.)

	No. 165 Dollars Percentage of Total Quality Costs Prevention % Appraisal % Internal failure % External failure % Total $0

3-a. Using the classifications in requirement (1), compute AT's quality costs for machine no. 172 in dollars and as a percentage of sales revenues. (Round "Percentage of Sales" to 2 decimal places.)

	No. 172 Dollars Percentage of Sales Prevention cost: Total $0 % Appraisal cost: % Internal failure cost: % External failure cost: Total $0 % Total quality costs $0 0.00 %

3-b. Using the classifications in requirement (1), compute AT's calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs. (Round "Percentage of Total Quality Costs" to 2 decimal places. Total may not be equal to 100% due to rounding.)

	No. 172 Dollars Percentage of Total Quality Costs Prevention % Appraisal % Internal failure % External failure % Total $0

Answer 1

Solution.

Quality Cost refers to the costs that are incurred to prevent, detect and remove defects from products. Quality costs are categorized into four main types. Theses are:

1. Prevention costs -The costs incurred to avoid or minimize the number of defects at first place are known as prevention costs.
2. Appraisal costs (also known as inspection costs) are those cost that are incurred to identify defective products before they are shipped to customers.
3. Internal failure costs are costs that are caused by products or services not conforming to requirements or customer/user needs and are found before delivery of products and services to external customers. They would have otherwise led to the customer not being satisfied
4. External failure costs- If defective products have been shipped to customers, external failure costs arise.