Question

Dream Travel produces car seats for children from newborn to 2 years old. Dream Travel​'s only problem with its car seats was stitching in the straps. The problem can usually be detected and repaired during an internal inspection.

Inspection costs$5.00 per car​ seat, and the repairs cost $ 1.00 per car seat. All 250,000 car seats were inspected last​ year, and 8% were found to have problems with the stitching. Another 4​% of the 250,000 car seats had problems with the​ stitching, but the internal inspection did not discover them. Defective units that were sold and shipped to customers are shipped back to Dream Travel and repaired. Shipping costs are $15.00 per car​ seat, and repair costs are $1.00 per car seat. Negative publicity will result in a loss of future contribution margin of $ 150 for each external failure.

Requirement 1. Identify total costs of quality by category​ (appraisal, internal​ failure, and external​ failure.)

	Costs of quality
Appraisal
Internal failure
External failure
Total costs of quality

Requirement 2.

Dream Travel is concerned with the high​ up-front cost of inspecting all 250,000 units. It is considering an alternative internal inspection plan that will cost only

$ 2.00 per car seat inspected. During the internal​ inspection, the alternative technique will detect only 4.0% of the 250,000 car seats that have stitching problems. The other 8.0%

will be detected after the car seats are sold and shipped. What are the total costs of quality for the alternative​ technique?

Appraisal cost
Internal failure cost
Out of pocket external failure cost
Opportunity cost of external failure
Total cost of quality

Requirement 3. What factors other than cost should Dream Travel Dream Travel consider before changing inspection​ techniques?

A.There could easily be serious reputation effects if the percentage of external failures increases significantly. This rise in external failures may lead to costs greater than

$ 150 per failure due to lost sales.

B. Higher external failure rates may increase the probability of lawsuits.  

C. Both of the above.

D.Neither of the​ above, cost is the only factor

Dream TravelDream Travel

should consider before changing inspection techniques.

Answer 1