During 2010 (the first year of operations), Ridenour Company produced 39,800 portable navigation systems. Of total production, 1,000 were found defective by quality appraisers. Six hundred of the defective units were reworked and sold through regular channels at the original price; the rest were sold as seconds without rework. (The uncorrected defect did not pose a hazard to customers; it was a "voice flaw" that made the units sometimes sound as if they were yelling at the users.) The navigation systems are sold with a two-year warranty; seconds have a six-month warranty.

In 2010, Ridenour Company spent $450,000 for prevention measures and $196,000 on appraisal. Following is the firm 2010 income statement, which appropriately does not reflect any income taxes:

a. Compute the total profit lost by Ridenour Company in its first year of operation by selling defective units as seconds rather than reworking them and selling them at the regular price.
b. Compute the company's total failure cost in 2010.
c. Compute the company's total quality cost in 2010.
d. Assume that selling and administrative expenses include $300,000 to operate a customer complaint center. How should this cost be categorized relative to quality costs?
e. Are the costs included in the 2010 income statement completely reflective of Ridenour's qualitycosts?

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RIDENOUR COMPANY Income Statement For Year Ended December 31, 2010 Regular sales (39400 units) Sales of seconds (400 units) Cost of goods sold $10,244,000 56,000 $10300,000 3,200,000 Original production costs Rework costs (600 units) Prevention and appraisal costs 21,000 66,000 800 (3,867,000) Gross margin Selling and administrative expenses (ail fixed) Net income $ 6,433,000 (2400,000) $ 4,033,000