Quantorus Corporation manufactures disk drives for computers by assembling parts and components from hundreds of suppliers. Cost-management analysts have been analyzing costs to produce disk drives and have determined that a large proportion of the cost is caused by detecting and replacing faulty components received from suppliers. Most faulty components currently cannot be detected until they are assembled into products that then fail performance tests. Following are estimated annual costs of three alternative decisions to manage this aspect of operations.

Alternatives for Supply of Disk Drive Components Cost per Year (US$ thousands)

1. Continue current supply and assembly operations—

detect and replace faulty components $2,331 2. Thoroughly inspect incoming components before they are assembled $1,708 3. Develop close relationships with a few selected suppliers that will guarantee the performance of all components $1,387 Required

a. Describe and explain other possible costs and benefits of each alternative.

b. How do you think cost-management analysts might have developed these cost estimates?

c. Which alternative do you recommend? Why