Custom Productions produces car seats for children from newborn to 2 years old.
ID: 2577332 • Letter: C
Question
Custom Productions produces car seats for children from newborn to 2 years old. The company is worried because one of its competitors has recently come under public scrutiny because of product failure. Historically, Safe Custom Productions's only problem with its car seats was stitching in the straps. Custom Production has discovered a more serious problem with the plastic core of its car seats. An accident can cause the plastic in some of the seats to crack and break, resulting in serious injuries to the occupant. It is estimated that this problem will affect about 300 car seats in the next year. This problem could be corrected by using a higher quality of plastic that would increase the cost of every car seat produced by $30. If this problem is not corrected, Custom Production estimates that out of the 300 car seats affected, customers will realize that the problem is due to a defect in the seats in only five cases. Custom Production's legal team has estimated that each of these five accidents would result in a lawsuit that could be settled for about $1,000,000. All lawsuits settled would include a confidentiality clause, so Custom Productions's reputation would not be affected.
Requirements:
1. Assuming that Custom Productions expects to sell 225,000 car seats next year, what would be the cost of increasing the quality of all 225,000 car seats?
2. What will be the total cost of the lawsuits next year if the problem is not corrected?
3. Suppose Custom Productions has decided not to increase the quality of the plastic because the cost of increasing the quality exceeds the benefits (saving the cost of lawsuits). What do you think of this decision? (Note: Because of the confidentiality clause, the decision will have no effect on Custom Productions’ reputation.)
4. Are there any other costs or benefits that Custom Productions should consider?
1. Assuming that Safe Ride expects to sell 225,000 car seats next year, what would be the cost of increasing the quality of all 225,000 car seats? 2. What will be the total cost of the lawsuits next year if theproblem is not corrected? 3. Suppose Safe Ride has decided not to increase the quality of the plastic because the cost of increasing the quality exceeds the benefits (saving the cost of lawsuits). What do you think of this decision? (Note: Because of the confidentiality clause, the decision will have no effect on Safe Ride's reputation.) 4. Are there any other costs or benefits that Safe Ride should consider?Explanation / Answer
1. The cost of increasing quality of 225000 car seats = 225000 x $30 = $6,750,000
2. Total cost of lawsuits next year = 1,000,000 x 5 = $5,000,000
3. It can be seen that the estimated cost of lawsuits is lower than the real cost of increasing quality. Looking at these figures, the company is not interested in making the adjustments to car seats. This is a risky factor since the thing that 5 out of 300 seats will be defective, is an estimated figure. It could be even higher. In that case the cost of lawsuits may exceed the cost of increasing the quality. Hence, Custom Productions should focus on spending to increase the quality of car seats.
4. There can be costs associated with low quality of car seats. One of such cost will be loss of consumers, in case of any accidents in the future due to this fault in the seats. One benefit the company can consider due to increasing the quality will be creation brand image, which will improve customer faith and support for the company.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.