Mont Corp produces and sells 1,000 dining tables per year. Currently its only quality problem with the products is related to varnishing. It currently incurs $400 per year for quality training and $600 per year for reliability engineering. Inspection cost is $6 per unit, and all units produced are inspected. Traditionally, at an internal inspection, 9% of all units fully-produced are found to have problems with the varnishing, and are reworked. Rework cost is $100 per unit. Defective units sold to customers are returned to the company and reworked. External failures are 1% of units sold, and the company incurs the shipping costs at the rate of $20 per unit. In 2020, management are considering an alternative method of inspecting products which will reduce inspection cost by $1.50 per unit. The alternative method will reduce the internal failure to 4% of all units produced, and increase the external failure rate to 6% of all units sold. In addition, with the alternative inspection plan, there will be a loss of future contribution margin of $80 for each external failure. Required: For 2020, compute the cost of each quality category (i.e., prevention, appraisal, internal failure and external failure costs) and the total cost of quality for Mont Corp assuming that: (a) the current inspection method continues to be in place
Mont Corp produces and sells 1,000 dining tables per year. Currently its only quality problem with the products is related to varnishing. It currently incurs $400 per year for quality training and $600 per year for reliability engineering. Inspection cost is $6 per unit, and all units produced are inspected.
Traditionally, at an internal inspection, 9% of all units fully-produced are found to have problems with the varnishing, and are reworked. Rework cost is $100 per unit. Defective units sold to customers are returned to the company and reworked. External failures are 1% of units sold, and the company incurs the shipping costs at the rate of $20 per unit.
In 2020, management are considering an alternative method of inspecting products which will reduce inspection cost by $1.50 per unit. The alternative method will reduce the internal failure to 4% of all units produced, and increase the external failure rate to 6% of all units sold. In addition, with the alternative inspection plan, there will be a loss of future contribution margin of $80 for each external failure.
Required:
For 2020, compute the cost of each quality category (i.e., prevention, appraisal, internal failure and external failure costs) and the total cost of quality for Mont Corp assuming that:
(a) the current inspection method continues to be in place
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