Boswell manufactures high-quality speakers. Suppose Boswell is considering spending the following amounts on a new quality program:
Additional 20 minutes of testing for each speaker ............................... $ 607,000
Negotiating with and training suppliers to obtain higher-quality
Materials and on-time delivery ............................................................. $ 300,000
Redesigning the speakers to make them easier to manufacture ....... $1,402,000
Boswell expects this quality program to save costs as follows:
Reduced warranty repair costs ............................................................. $205,000
Avoid inspection of raw materials ......................................................... $403,000
Rework avoided because of fewer defective units ............................... $652,000
It also expects this program to avoid lost profits from the following:
Lost sales due to disappointed customers ........................................... $853,000
Lost production time due to rework ...................................................... $305,000
1. Classify each of these costs into one of the four categories of quality costs (prevention, appraisal, internal failure, external failure).
2. Should Boswell implement the quality program? Give your reasons.