Problem Industrial Technologies, Inc. (ITI), produces two compression machines t
ID: 2394902 • Letter: P
Question
Problem Industrial Technologies, Inc. (ITI), 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 $30,000, whereas no. 172 typically sells for approximately $27,500. The company is very concemed about quality and has provided the tollowing information Na. 172 No. 165 160 Numbar of machines groducad and sol Warranty costs Awerage repair cost per unit Percentage of units needing repair Relability enginearing at $150 per ho Rework at I's manutacturing plart $900 70% 1,600 haurs $350 10% 2000 hour Average rqwork cast per unt $1,900$1,800 Parcentage of units needing rework Manutacturing irspection at $50 par hour. Transportation coets to customer sikes to fux problemS Quality training for employess Required: 35 300 hours $29 500 25% 500 hours $15,000 1. Classity the preceding costs as prevention, appraisal, intenal failure, or extemal failure 2. Using the classifications in requirement (1), compute ITT's quality costs for machine no 165 in dollars and as a percentage of sales revenues. Also calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs. 3. Repeat requirement (2) for machine no. 172. 4. Comment on your findings, noting whether the company is 'investing its quality expenditures differently for the two machines hidden. What are hidden qualty costs, and 5. Quality costs can be classified as observable or how do these costs ditter from observable costs? Step-by-step solutionExplanation / Answer
First 4 questions have been answered:
Part 1.
No. 165
No. 172
Costs
Amount ($)
Amount ($)
Classification
Reason
Warranty costs:
Average repair cost per unit
900
350
Internal failure
As the repair costs is for items that breaks down
Reliability engineering at $150 per hour
1600 hours
2000 hours
Appraisal
As the reliability engineering is expected to make a product better
Rework at ITI's manufacturing plant:
Average rework cost per unit
1900
1600
Internal failure
As the rework will be needed for the faulty items manufactured for internal failure
Manufacturing inspection at $50 per hour
300 Hours
500 Hours
Prevention
As the inspection is conducted to prevent manufacturing of defective products
Transportation costs to customer sites to fix problems
29500
15000
External failure as the products have been damaged in the customers' sites
Quality training for employees
35000
50000
Prevention
As the quality training is provided to ensure proper manufacturing of products
Part 2 and part 3.
Quality costs of no. 165
Quality costs of no. 172
Particulars
Amount ($)
Amount ($)
Particulars
Amount ($)
Amount ($)
Quality training for employees
35,000.00
Quality training for employees
50,000.00
Manufacturing inspection costs at $50 per hour (300 x 50)
15,000.00
Manufacturing inspection costs at $50 per hour (500 x 50)
25,000.00
Reliability engineering costs @$150 per hour (1600 x 150)
240,000.00
Reliability engineering costs @$150 per hour (2000 x 150)
300,000.00
Total quality costs
290,000.00
Total quality costs
375,000.00
Sales (160 x 30000)
4,800,000.00
Sales (200 x 27500)
5,500,000.00
Total quality costs
290,000.00
Total quality costs
375,000.00
% of total quality costs to sales (290000 x 100/4800000)
6.04
% of total quality costs to sales (375000 x 100/5500000)
6.82
Internal failure costs
No. 165
No. 172
Internal failure
Average Repair costs per unit
900.00
350.00
Percentage of units requiring repair
0.70
0.10
Repair costs for:
No. 165 (160 x 70%)x 900
100,800.00
No. 172 (200 x 10%) x 350
7,000.00
Rework costs:
Average rework cost per unit
1,900.00
1,600.00
Percentage of units required rework costs
0.35
0.25
Rework costs for:
No. 165 (160 x 35%)x 1900
106,400.00
No. 172 (200 x 25%) x 1600
80,000.00
Total internal failure costs for:
No. 165 (100800 + 106400)
207,200.00
No. 172 (7000 + 80000)
87,000.00
Sales
4,800,000.00
5,500,000.00
% of internal failure costs to sales for:
No. 165 (207200 x 100/4800000)
4.32
No. 172 (87000 x 100/5500000)
1.58
Prevention costs
No. 165
No. 172
Manufacturing inspection costs for:
No. 165 (300 x 50)
15,000.00
No. 172 (500 x 50)
25,000.00
Quality training for employees
35,000.00
50,000.00
Total appraisal costs
50,000.00
75,000.00
Sales
4,800,000.00
5,500,000.00
% of appraisal cost to sales for:
No. 165 (50000 x 100/4800000)
1.04
No. 172 (75000 x 100/5500000)
1.36
External failure costs:
No. 165
No. 172
Transportation costs to customer sites to fix problems
29,500.00
15,000.00
Total external failure costs
29,500.00
15,000.00
Sales
4,800,000.00
5,500,000.00
% of external failure cost to sales for:
No. 165 (29500 x 100/4800000)
0.61
No. 172 (15000 x 100/5500000)
0.27
Appraisal costs:
No. 165
No. 172
Reliability engineering costs
For 165 (1600 x 150)
240,000.00
For 172 (2000 x 150)
300,000.00
Sales
4,800,000.00
5,500,000.00
% of Appraisal costs to sales for:
No. 165 (240000 x 100/4800000)
5.00
No. 172 (300000 x 100/5500000)
5.45
Part 4:
Yes, the company is investing quality expenditures differently for two different machines as can be seen from the table below. However, the difference in investment in quality expenditures is not major.
Quality costs of no. 165
Quality costs of no. 172
Particulars
Amount ($)
Amount ($)
Particulars
Amount ($)
Quality training for employees
35,000.00
Quality training for employees
50,000.00
Manufacturing inspection costs at $50 per hour (300 x 50)
15,000.00
Manufacturing inspection costs at $50 per hour (500 x 50)
25,000.00
Reliability engineering costs @$150 per hour (1600 x 150)
240,000.00
Reliability engineering costs @$150 per hour (2000 x 150)
300,000.00
Total quality costs
290,000.00
Total quality costs
Sales (160 x 30000)
4,800,000.00
Sales (200 x 27500)
5,500,000.00
Total quality costs
290,000.00
Total quality costs
375,000.00
% of total quality costs to sales (290000 x 100/4800000)
6.04
% of total quality costs to sales (375000 x 100/5500000)
6.82
No. 165
No. 172
Costs
Amount ($)
Amount ($)
Classification
Reason
Warranty costs:
Average repair cost per unit
900
350
Internal failure
As the repair costs is for items that breaks down
Reliability engineering at $150 per hour
1600 hours
2000 hours
Appraisal
As the reliability engineering is expected to make a product better
Rework at ITI's manufacturing plant:
Average rework cost per unit
1900
1600
Internal failure
As the rework will be needed for the faulty items manufactured for internal failure
Manufacturing inspection at $50 per hour
300 Hours
500 Hours
Prevention
As the inspection is conducted to prevent manufacturing of defective products
Transportation costs to customer sites to fix problems
29500
15000
External failure as the products have been damaged in the customers' sites
Quality training for employees
35000
50000
Prevention
As the quality training is provided to ensure proper manufacturing of products
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