Relevant costs, qualitative factors, costs of quality framework, ethics Kwik 10 2,3,6 Clean handles both commercial laundry and individual customer dry clean¬ ing. Kwik Clean's current dry-cleaning process involves emitting a pollutant into the air. In addition, the commercial laundry dry cleaning produces sedi¬ ments and other elements that must receive special treatment before dis¬ posal. Pat Pol ley, Kwik Clean's owner, is concerned about the cost of dealing with increasingly stringent laws and environmental regulations. Recent legislation requires Kwik Clean to reduce the amount of its air pollution emissions.

To reduce pollution emissions, Polley is considering the following two options:

Option 1. Invest in equipment that would reduce emissions through filtration. The equipment would involve a large capital expenditure but would bring Kwik Clean into compliance with current regulations for emissions.

Option 2. Invest in a new dry-cleaning process that would eliminate cur¬ rent air pollution emissions, partly through using a different solvent than the one currently used. This option would require an even larger capital expendi¬ ture than option 1, but the new equipment would reduce some operating costs. Moreover, Kwik Clean might be able to market its environmentally safer process to increase business.

In evaluating the two options and current operations, Polley has enumer¬ ated the following items:

1. The price and quantity of solvent used in current operations (and option 1).

2. The price and quantity of the new solvent that would be used in option 2.

3. The purchase cost of new equipment for option 1 and for option 2.

4. The cost of removing old equipment and installing new equipment under option 2.

5. The purchase price of the filtration equipment in option 1, and useful life of the equipment.

6. The purchase price of the current equipment and remaining useful life.

7. The salvage value of the current equipment, which would be sold under option 2.

8. Polley's salary and fringe benefits.

9. Labor costs for current operations (and option 1) and option 2; labor costs would be lower under option 2 than under option 1.

10. Training costs associated with the new equipment in option 2.

11. Legal fees paid to handle paperwork associated with hazardous waste lia¬ bilities connected with the sediments produced when cleaning commer¬ cial laundry by the current operations. The same sediments would be produced with the equipment in option 2.

12. Storage and disposal costs associated with the sediments produced when cleaning commercial laundry.

13. Insurance for the equipment and workers. Under option 2, insurance fees would be reduced from the current level.

Polley was concerned about recent events publicized locally. A newspaper article reported that the Occupational Safety and Health Administration (OSHA) fined one of Polley's competitors several thousand dollars for un¬ safe employee working conditions related to handling solvents. Another business incurred a very expensive cleanup for accidental hazardous waste leakage that contaminated the soil. The leakage received major attention in the local television and radio news broadcasts, and was headlined in the local newspapers.

REQUIRED

(a) Which costs are relevant to Polley's decision between option 1 and op¬ tion 2? K

(b) What qualitative factors is Polley like to consider in making the decision between option 1 and option 2?

(c) Explain how the cost of quality framework of prevention, appraisal, inter¬ nal failure, and external failure might be applied to operations with environmental pollution, where "failures" are defined as accidental spillage or leakage of hazardous wastes, or illegal levels of pollutants. In which of the four cost of quality categories would you advise Polley to focus her attention?