49. (Cost of quality) Golf courses are demanding in their quest for high-quality carts because of the critical need for lawn maintenance. Ride-in-Style manufactures golf carts and is a recognized leader in the industry for quality products.

In recent months, company managers have become more interested in trying to quantify the costs of quality in the company. As an initial effort, the company was able to identify the following 2000 costs, by categories that are associated with quality:

Prevention Costs Quality training $15,000 Quality technology 50,000 Quality circles 32,000 Appraisal Costs Quality inspections $18,000 Test equipment 14,000 Procedure verifications 9,000 Internal Failure Costs Scrap and waste $ 6,500 Waste disposal 2,100 External Failure Costs Warranty handling $ 9,500 Customer reimbursements/returns 7,600 Managers were also aware that in 2000, 250 of the 8,000 carts that were 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 Ride-in-Style’s 2000 expense for the following:

1. Lost profits from scrapping the 250 units 2. Total failure costs 3. Total quality costs

b. Assume that the company is considering expanding its existing full 5-year warranty to a full 7-year warranty in 2001. How would such a change be reflected in quality costs?