Problem 1 A small but important raw material is an ingredient in a special plast
ID: 348977 • Letter: P
Question
Problem 1
A small but important raw material is an ingredient in a special plastic used in automobile bumpers. The raw material costs $.50 per bumper. The plastic costs $5. The bumpers have a variable manufacturing cost of $25 each. XYZ Motor Company buys the bumpers from the bumper supplier for $40 each and assembles them into its autos. When a repair shop orders a replacement bumper, it buys bumpers for $100 each and charges the car owner $250 including labor to replace it.
The original raw material has a bad batch that goes into 10,000 front bumpers. While the bad raw material originally costs $5,00, the problem is not discovered until all 10,000 cars have been sold. The government requires XYZ to recall all the cars and have their front bumpers replaced. What is the closest estimate of the failure cost to XYZ and its 10,000 customers?
Justify your choice with some rough calculations based on the information given. (Think of the different categories of costs involved. Estimate each of these costs and provide some justification for the numbers.)
Problem 2
What are the costs of quality that are incurred by a restaurant that serves food that is eaten raw: salads (for example)? Discuss these costs under the four headings (prevention, appraisal, internal failure, and external failure). A full discussion has to include this restaurant’s supply chain also.
Explanation / Answer
Problem 1:
The closest estimate of the cost of quality:
Cost of bumpers to be replaced: $ 100 X 10,000= $ 1 million
New bumpers to be fixed.
Cost paid by XYX to repair shop to replace bumpers = $250 X 10,000 = $ 2.5 million
Total cost to XYZ = $ 1 million + $ 2.5 million = $ 3.5 million
The closest estimate of failure cost is (d) $ 3 million
Problem 2:
The various costs of quality that is incurred by a restaurant that serves raw food is given as below:
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