Langley manufactures high-quality speakers. Suppose Langley is considering spending the following amounts on a new quality program:
Additional 20 minutes testing for each speaker........$ 690,000
Negotiating and training suppliers to obtain higher-quality materials
and on-time delivery..................... 350,000
Redesigning the speakers to make them easier to manufacture...1,200,000
Langley expects this quality program to save costs as follows:
Reduce warranty repair costs...............$ 225,000
Avoid inspection of raw materials.......... 550,000
Avoid rework because of fewer defective units ........ 780,000
It also expects this program to avoid lost profits from the following:
Lost sales due to disappointed customers ........$ 890,000
Lost production time due to rework.......... 283,000
Requirements
1. Classify each of these costs into one of the four categories of quality costs (prevention, appraisal, internal failure, external failure).
2. Should Langley implement the quality program? Give your reasons.