(Cost of quality) Quick Computers is evaluating its quality control costs for 2006 and preparing plans and budgets for 2007. The 2006 quality costs in¬ curred in the CPU Division follow:

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

a. Which categories of quality costs would be affected by the decision to spend $1,500,000 on new computer chip-making equipment (to replace older equipment)? Why?

b. If projected external failure costs for 2007 can be reduced 60 percent (relative to 2006 levels) by spending either $50,000 more on appraisal or $80,000 more on prevention, why might the firm opt to spend the $80,000 on prevention rather than the $50,000 on appraisal? LO.1

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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