Al Khoud Corporation produces custom made dashboards for international car manufacturers in the GCC States. It provides the following costing data: Quantity Sold 850,000 Rework OMR32,000 Selling Price per unit OMR5,50 Scrap OMR2,700 Prevention Costs OMR31,000 Product Replacements Costs OMR37,500 Appraisal Costs OMR20,000 Lost of sales from Repeating Customers OMR58,750 Improvement Costs OMR25,200 Contribution Margin 55% A customer satisfaction survey suggests that an alarming number of car manufacturers were upset because the products did not meet their specifications, causing them to return and seek replacements. Al Khoud Corporation decided to embark on production improvement process which costs are provided in the table above. Following the production improvement process, the following impacts are forecasted: Percentage decrease in Product Replacement Costs Percentage decrease in Lost of sales from Repeating Customers 55% 45% You are required to (a) Explain with proper numerical justifications whether Al Khoud Corporation should continue with the (10 marks) production improvement process (b) Calculate the prevention, appraisal, interal falure, and external failure costs as a percentage of (10 marks) total quality costs (Co) and as a percentage of sales before and after the change in the production process 71 Page Al Khoud Corporation produces custom made dashboards for international car manufacturers in the GCC States. It provides the following costing data: Quantity Sold 850,000 Rework OMR32,000 Selling Price per unit OMR5,50 Scrap OMR2,700 Prevention Costs OMR31,000 Product Replacements Costs OMR37,500 Appraisal Costs OMR20,000 Lost of sales from Repeating Customers OMR58,750 Improvement Costs OMR25,200 Contribution Margin 55% A customer satisfaction survey suggests that an alarming number of car manufacturers were upset because the products did not meet their specifications, causing them to return and seek replacements. Al Khoud Corporation decided to embark on production improvement process which costs are provided in the table above. Following the production improvement process, the following impacts are forecasted: Percentage decrease in Product Replacement Costs Percentage decrease in Lost of sales from Repeating Customers 55% 45% You are required to (a) Explain with proper numerical justifications whether Al Khoud Corporation should continue with the (10 marks) production improvement process (b) Calculate the prevention, appraisal, interal falure, and external failure costs as a percentage of (10 marks) total quality costs (Co) and as a percentage of sales before and after the change in the production process 71 Page
