=+Prior to receiving the new corporate quality objective, Nancy had collected information for all of the plant’s possible options for improving both product quality and costs of quality. She was planning to introduce the idea of re-engineering the manufacturing process at a one-time cost of $75000, which would decrease product inspection costs by approximately 25% per year and was expected to reduce warranty repairs and customer support by an estimated 40% per year. After seeing the new corporate objective, Nancy is reconsidering the re-engineering idea.

Nancy returns to her office and crunches the numbers again to look for other alternatives. She concludes that, by increasing the cost of quality control training for production staff by $15000 per year, the company would reduce inspection costs by 10% annually and reduce warranty repairs and customer support costs by 20% per year, as well. She is leaning towards only presenting this latter option to Chris, the general manager, since this is the only option that meets the new corporate quality objective.

Required 1 Calculate the ratio of each costs-of-quality category (prevention, appraisal, internal failure and external failure) to revenues for 2015. Are the total costs of quality as a percentage of revenues currently less than 10%?