Wharfedale manufactures high-quality speakers. Suppose Wharfedale is considering spending the following amounts on a new quality program:
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Additional 20 minutes of testing for each speaker
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$ 600,000
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Negotiation with and training suppliers to obtain higher-quality materials and on-time delivery
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300,000
|
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Redesigning the speakers to make them easier to manufacture
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1,400,000
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Wharfedale expects this quality program to save costs as follows:
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Reduced warranty repair costs
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$ 200,000
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Avoid inspection of raw materials
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400,000
|
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Rework avoided because of fewer defective units
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650, 000
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It also expects this program to avoid lost profits from the followings:
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Lost sales due to disappointed customers
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$ 850,000
|
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Lost production time due to rework
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300,000
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1) Classify each of these costs into one of four categories of quality costs (prevention, appraisal, internal failure, external failure)
2) Should Whardale implement the quality program? Give your reasons.