(Cost of quality) Kleinfeld Aquariums is evaluating its quality control costs for 1997 and preparing plans and budgets for 1998. The 1997 quality costs incurred in the Large Tank Division follow:

Prepare a memo to the company president on the following issues:

a. Which categories of failure costs would be affected by the decision to spend $150,000 on a new computer-controlled drill press (to replace an old manual drill press)? Why?

b. If projected external failure costs for 1998 can be reduced 60 percent (relative to 1997 levels) by either spending $50,000 more on appraisal or $80,000 more on prevention, why would the firm opt to spend the $80,000 on pre¬ vention rather than the $50,000 on appraisal?LO1

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Prevention costs $300,000 Appraisal costs 100,000 Internal failure costs 350,000 External failure costs Total 100,000 $850,000