Cost of quality) Golf courses are demanding in their quest for high-quality carts because of the critical need for lawn maintenance. Smooth Bill manu¬ factures golf carts and is a recognized leader in the industry for quality products. In recent months, company managers have become more inter¬ ested in trying to quantify the company’s cost of quality. As an initial effort, the company identified the following 2006 costs by categories that are asso¬ ciated with quality:

Managers were also aware that in 2006, 250 of the 8,000 carts produced had to be sold as scrap. These 250 carts were sold for $80 less profit per unit than “good" carts. Also, the company incurred rework costs amounting to $6,000 to sell 200 other carts through regular market channels.

a. Using these data, find Smooth Bill’s 2006 expense for the following:
1. Lost profit from scrapping the 250 units 2. Total failure cost 3. Total quality cost

b. Assume that the company is considering expanding its existing full 5-year warranty to a full 7-year warranty in 2007. How would such a change be reflected in quality costs? LO.1

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Prevention Costs Quality training $15,000 Quality technology 50,000 Quality circles 32,000 Appraisal Costs Quality inspections Test equipment Procedure verifications $18,000 14,000 9,000 Internal Failure Costs Scrap and waste Waste disposal External Failure Costs Warranty handling Customer reimbursements/returns $ 6,500 2,100 $ 9,500 7,600